UC, Unearned Income and discretionary trusts

Hello,

I have to admit to not having waded through the full Regs yet, but I have noted that pretty much everything will now be classed as income. My interest in this lies, as with some previous posts, in relation to payments made from discretionary trust funds.

If my understanding is correct, all payments made from a discretionary trust fund will now be counted in full as income and therefore impact on someone’s monthly UC entitlement.

Has anyone else noticed this? Is my understanding correct?

I wonder whether this will impact on some people’s decision to leave money for their vulnerable relatives in a trust or not…....

Thanks

Sarah

It always has.

I think we might have covered this before, but CPAG page 975 states that income from the trust (discretionary) would generally be treated as a voluntary payment and ignored and reference is then made to various schedules of different Regs. I remember there was a discussion about taxable income but didn’t quite get my head around it

We provide the administration for a number of discretionary trusts where payments are made to people on means tested benefits and they have not been taken into account as income, I assume as they have fallen into the voluntary payment bracket.

There doesn’t appear to be any equivalent of the voluntary payment provision in the UC regs which I guess could be a concern, discretionary trusts aside

From the draft regs, unearned income is defined as first, a long list of other benefits, then((c)(c) spousal maintenance;
(d)student income (see IC28);
(e)[training allowances ];
(f)[the maintenance element of sports award …];
(g)[cash in lieu of concessionary coal];
(h)income from an annuity, other than retirement pension income (unless disregarded under regulation [1C10] and [1C13].);
(i)income from a trust (unless disregarded under regulation [1C10] and [1C13]);
(j)income that is treated as the yield from a claimant’s capital by virtue of regulation [IC9];
(k)capital treated as income by virtue of regulation [IC2(3) or (4)];
(l)[Any other income, not so far included that is taxable under Part 5 of ITTOIA 2005].

1C10 and 1C13 are the trusts from a PI award, and special compensation schems respectively.
Voluntary payments are not there so aren’t income.
I have never been of the view that payments from a discretionary trust are voluntary. A volunteer, in property law, is someone who has given no “consideration”, which means money or money’s worth such as labour, for what he receives (ie, nothing resembling a contract). The beneficiary of a completely constituted trust by contrast doesn’t need to rely on the long established principle that “equity will not assist a volunteer” because of the obligations created by the trust itself. I can see nothing in the commentary on the regulations that extends this to the beneficiary of a discretionary trust.