This is because it is not a chargeable transfer for IHT purposes; it is a potentially exempt transfer. This means more than £325,000 can go into the trust without triggering IHT.

Unlike a standard discretionary rust, this type of trust is not part of the IHT relevant property regime, so does not incur possible IHT on each 10th anniversary and on distributions of capital.

However, for IHT purposes, the capital value would be treated as comprised in vulnerable child’s estate when they die. If above their IHT nil rate band and any other allowances available, there would be a charge to IHT at the rate prevailing at the time, currently 40 per cent.

CGT

There is favourable CGT treatment on gains arising on assets held in the trust. If an asset is sold that has made again, the full CGT allowance applicable to an individual is available, although it is hardly much to get excited about – a mere £3,000.

However, a disadvantage with this type of trust is that because there can be no charge to IHT when it is created nor indeed during the lifetime of the trust, HMRC do not currently give you the ability to holdover capital gains on creation.

In consequence, there would be a significant CGT charge if the trust receives assets that have risen in value, such as investments or a property.  

Income tax 

This is the real benefit of a disabled person's trust; assets producing an income will benefit from the vulnerable child’s personal income tax allowance and their low marginal rate of tax, which could mean very little, if any, income tax on income produced by the trust.

So, the key considerations when choosing a trust include:

1. Assets to be transferred: The type and value of assets can influence which trust is more suitable.
2. Tax implications: Consider both immediate and long-term tax consequences.
3. Beneficiary's needs: Ensure the trust structure aligns with your child's specific requirements.
4. Administrative burden: Consider the ongoing management and who would be suitable trustees.

Given the complexity of trust structures and tax implications, it is essential to seek professional legal and financial advice. An experienced solicitor can:

• assess your specific situation;
• explain the pros and cons of each option in detail;
• help you make an informed decision; and
• assist with trust creation and required reporting to HMRC.

Remember, while tax efficiency is important, the primary goal is to ensure your child's long-term wellbeing and financial security.

By carefully considering your options and seeking professional guidance, you can create a robust plan that provides for your disabled child's future, giving you peace of mind and ensuring their needs are met for years to come, without impacting their entitlement to state benefits.

Nadia Cowdrey is a partner at DMH Stallard