A trust is fund is a legal agreement that gives someone, known as a trustee, the authority to control and invest the money of someone else, known as the beneficiary. In some cases there may be more than one beneficiary for a trust.
If as a result of mental or physical illness or disability you are permanently unable to earn money to support yourself financially, you may be classified as ‘permanently incapacitated’.
If this happens, you, your family, or friends may make a public appeal or organise charitable events to raise money. The money raised from this type of appeal is known as ‘public subscriptions’. This money can be placed in a trust and used for the benefit of the permanently incapacitated person throughout their life. The trust can be for the benefit of more than one beneficiary.
Qualifying criteria for tax exemptions
Investments made by trust funds are usually subject to tax, but when a trust fund for a permanently incapacitated person meets certain criteria it can be exempt from tax:
- The trust must be set up only for the benefit of one or more individual(s) who are permanently incapacitated
- The money in the trust must have been raised through ‘public subscriptions’ only, or money made from investments made with the original ‘public subscriptions’
- The money raised through ‘public subscriptions’ cannot be more than €381,000. Or, if more than €381,000 is raised in this way, that no one person contributed more than 30% of the final total collected.
- The trustee who controls the trust cannot be directly related to or connected to the beneficiary, and must work independently and objectively at all times
- If the beneficiary dies, or the last beneficiary if there was more than one, and there is still money in the fund, it has to be treated as part their estate or be distributed to another charity or charitable purpose
- The money in the trust must provide the beneficiary or beneficiaries with their only source of income, excluding social welfare payments relating to invalidity pension or benefit due to the injury or disability that has led to their classification as ‘permanently incapacitated’
If the trust meets the criteria, it is exempt from tax on:
- Payments made from the trust to the beneficiary or beneficiaries
- Dividends from investments made by the trustee with the trust’s funds
- Deposit Interest Retention Tax (DIRT) on investments may be repaid to trustees
How to apply
If you are looking for a tax exemption on a trust fund set up for someone who is permanently incapacitated, you must declare the total income when making annual tax returns.
You will need to send the following documentation to Revenue (only required with first claim for a tax exemption):
- A medical certificate detailing the person’s incapacity
- A copy of the trust deed
- A declaration from the trustees declaring that the conditions regarding public subscriptions are met
Setting up a trust fund has complex legal implications. It is important to get advice from a qualified legal professional (for example, a solicitor). You may want to discuss the tax implications with an accountant or Revenue (or both).
It is also possible to get tax relief for payments made to incapacited individuals, through a deeds of covenant.