People with disabilities are facing potential hardship because banks are scrapping trust accounts that allow money to be managed safely on their behalf.
Victims awarded personal injury settlements and those with learning difficulties are among those facing “severe consequences” as accounts are closed or frozen by high street banks and building societies, according to campaigners.
Trust accounts are typically set up by representatives of a vulnerable individual to protect their assets and ensure a stable financial future.
A disabled person’s trust gives an appointed trustee a legal right to administer funds or property on behalf of the beneficiary. The assets, which may include compensation for serious injury, do not count towards means-testing and are eligible for tax relief.
However, since Covid nearly all high street banks have withdrawn the service citing costs and complex compliance laws. In recent weeks, Nationwide building society became the latest provider to pull out of the market.
The closures have removed a lifeline from learning-impaired people who are already financially excluded, according to the charity Mencap, which warns that ordinary accounts may put them at risk of financial abuse. Some trustees have been unable to pay for essentials such as carer support and mobile phone contracts because a trust account has been closed.
“We’re hearing from an increasing number of families of people with a learning disability who don’t know where to turn,” said Mencap’s chief executive, Jon Sparkes. “Some already have a disabled person’s trust account in place but have been warned it is now due to close and others can’t set one up because banks no longer offer this type of service.”
James Trotman says he had to cancel Christmas plans for his disabled son after Nationwide froze the £28,000 in his trust account without warning, pending closure.
“We were informed in September that the account would have to close by 23 December as Nationwide was ceasing to offer the service,” he said. “When we tried to withdraw the funds we were told that all trust accounts had been blocked as they had to be re-verified before they were closed. I provided all the requested information, but a month later we were still unable to access the money.”
Another trustee who did not wish to be named said the Nationwide trust account that provided an income for her disabled brother was frozen without warning, leaving her unable to replace his broken laptop.
“Nationwide had written to say it intended to close this account and required the original trust document and the HMRC registration,” she said. “Meanwhile, without warning, it put a security block on the account. We immediately took the required documents to the local branch. That was nearly three weeks ago, but the account has not been restored and Nationwide won’t tell us when we will receive the funds.”
The funds of both accounts were released after the Guardian intervened. Nationwide said it was closing all trust accounts except for bare trusts, typically set up by parents for their children, adding that those needing accounts for adults must look elsewhere. Beneficiaries of bare trusts assume responsibility for the funds as soon as they come of age, making such trusts unsuitable for those with cognitive impairment.
A Nationwide spokesperson said that accounts were being blocked until required paperwork was submitted to meet legal and regulatory obligations. “We accept we could have been clearer that restrictions would be placed on these accounts and that there have been delays in resolving the issues with some customers when they have supplied us information for review.”
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The exodus from the trust market has left few options for families wanting to secure the financial future of adult dependants.
Metro is the only high street bank that still offers the service, although accounts holding less than £25,000 incur a £5-a-month fee. Cater Allen, Santander’s private banking arm, also provides trust accounts but applicants must be referred by a solicitor or financial adviser.
“Trust accounts are now almost extinct as an accessible service,” said Donna Holmes, a partner at the law firm Anthony Collins. “Clear guidance [from the regulator] is desperately needed in order to give trustees and beneficiaries peace of mind that access to their funds is not going to be cut off without warning, and if a service is being withdrawn, that a suitable alternative is provided.”
The Financial Conduct Authority said it was aware of the impact that the closure of trust funds could have on vulnerable people. “Banks and building societies are able to choose which products they offer,” said a spokesperson for the regulator. “However, we urge firms to think carefully before withdrawing a product, where this is likely to impact vulnerable consumers, and to mitigate the impact where possible.
“We have spoken to disability charities and account providers to understand more about the issues caused by lack of access to trust accounts.”