Trust funds for permanently incapacitated people
Information
It is possible in Ireland to set up trust funds from the proceeds of public subscriptions to benefit those who are permanently and totally incapacitated. ("Permanently incapacitated" means the beneficiary of the fund is totally and permanently unable to maintain themselves as a result of physical or mental infirmity. Their incapacity may have occurred as the result of an accident, illness, progressive disorder, etc.)
Under Section 12 of the Finance Act 1999, provision has been made to ensure that certain trust funds established for the benefit of this person may be exempt from income tax.
Sometimes following an accident, illness, etc. the family, friends or colleagues of someone who is or has become permanently incapacitated may run some events to help raise money for the benefit of the disabled or incapacitated person. The money that is then raised from these events, may be held in trust for the permanently incapacitated individual and used for their benefit throughout their life. For example, funds may be used to pay for health treatment, a holiday, specialised equipment, a carer for the beneficiary, etc.
Trust funds
A trust is legally enforceable (agreement) that is established between the trustees of the fund and the beneficiary or beneficiaries. The trustees are the administrators (or custodians) of the fund and their role is to maintain and operate the assets of the trust for the benefit of the beneficieries. The beneficiary (or beneficiaries), is the permanently incapacitated person who benefits from the funds raised on their behalf. Trustees cannot have any connection with the beneficiary. (In other words, they cannot be family members or spouses of the beneficiary. They must remain independent and objective in decisions arising from the operation of the trust to ensure they act in the best interest of the beneficiary).
Rules
Public subscriptions
Funds raised from public subscriptions generally mean monies raised from a public appeal, a charitable event, etc. In order to avail of the tax exemptions, the trust must be set up under specific conditions as follows:
- The trust must only be for the benefit of the named individual(s) for the persons lifetime. The individual(s) must be permanently and totally incapacitated. In other words, the person must suffer from a physical or mental infirmity which results in them being unable to maintain themselves.
- Trustees must have no connection with the permanently incapacitated individual
- The funds of the trust must be created by public subscriptions. This means that a public appeal must be made inviting subscriptions. If the total subscriptons exceed €381,000, no single individual can contribute more than 30% of the total.
- The trustees hold in trust for the individual, funds that are to be applied for the benefit of the named individuals and in the event of the death of the beneficiary, the undistributed part of the fund are to be applied for charitable purposes or are to be appointed in favour of the trustees of other charitable bodies
- If the individual is to be exempt from tax the money from the trust fund must be their sole or main source of income. Income from social welfare payments is not counted when deciding if the trust fund is the main source of income.
Tax exemptions
Trust funds set up for the benefit of a permanently incapacitated person(s) allow both the trustees and the incapacitated individual(s) to avail of certain tax exemptions. The following is a summary of the tax exemptions:
- The trustees of a qualifying trust are exempt from income tax in respect of income they receive from the investment of the trust funds.
- The trustees are entitled to reclaim any Deposit Interest Retention Tax (DIRT) paid by them on or after 6 April 1997.
- The incapacitated individual is exempt from tax in respect of payments made by the trustees to or for his/her benefit. They are also exempt from tax from the income arising from the investment of payments.
Applying for tax exemption
The incapacitated person or persons receiving income and the trustees must declare this income to the Revenue Commissioners when making their annual tax returns. When a claim is first made for a tax exemption, the following documention is required:
- A medical certificate detailing the persons incapacity,
- A copy of the trust deed,
- A declaration from the trustees declaring that the conditions regarding public subscriptions are met.
How to apply
Setting up a trust fund has complex legal implications. It is important therefore to seek the advice of a qualified legal professional (for example, a solicitor). In addition, it is very important to discuss the tax implications with an accountant and the Revenue Commissioners.
It is also possible to obtain tax relief for payments made to incapacited individuals, through a deeds of covenant. Tax relief for payments made to incapacitated individuals can also be obtained through the investment income from personal injuries awards. More information is available about Personal Injury Compensation Payments and tax relief (pdf).
Language
Related Documents
- Capital Acquisitions Tax
If you receive a gift, you may have to pay Gift Tax on it. If you receive an inheritance following a death, it may be liable to Inheritance Tax. Both these taxes are types of Capital Acquisitions Tax. - Budget 2011
Budget 2011 was announced on 7 December 2010. Summary of the main changes. - Deposit Interest Retention Tax
If you earn interest on savings then you may have to pay a tax on the interest called Deposit Interest Retention Tax (DIRT).
Contact Us
If you have a question relating to this topic you can contact the Citizens Information Phone Service on 0761 07 4000 (Monday to Friday, 9am to 9pm) or you can visit your local Citizens Information Centre.