I hope the forum will provide some pointers on the position of additions (if possible) to a bereaved minors trust which came into being approximately 12 months ago. Since that time the trustees have discovered that a death in service benefit payment of over £5000,000.00 is payable from the deceased’s employer. Can this be paid into the trust to take advantage of the favourable tax treatment of this type of trust and if so would the 10 yearly charge be calculated from the addition or from when the trust was initially set up? If it is not possible to add the money to the existing trust then a new trust would need to be created? I am concerned that a new trust would not be tax efficient.
My understanding is that it is not possible to make additions to a will trust in the way you describe.
The employers will in my experience require a trust or trusts to be set up for the benefit of the bereaved minor/minors and to approve the terms. Would it be possible for two different pilot trusts to be set up on different days in similar terms and for the payment to be split between them - in effect, half for child A and its family and the other half in a trust for child B and its family.
Of course if you tell me that there is only one child, that makes it more difficult.
Thank you Jill. There are two children. If the Will trust has sufficient money in it to provide for the children then would a bare trust for the death in service benefit have any advantages over other types of trust for tax purposes?
I doubt the trustees paying out the death in service benefits would sanction the use of a bare trust. It would mean that the children could get their hands on (what was it?) £250,000 each at the age of 18 (Saunders v Vautier). That is likely to lead to disaster in my view.
I think you need to consider what would be an appropriate level and manner of provision for the children by discussing this first with the family, and then with the trustees who will be paying out the death in service benefit in order to determine what kind of trust they would be happy to pay into. Assuming the children have no disabilities, and further assuming a bare trust is out of the question, then realistically, everything you look at will be taxed under the relevant property trust regime. You just want something which is flexible, but won’t spoil the children’s ordinary life experiences. They have already had a significant blow in the loss of their parent, and they need stability and an absence of events which could throw them off course in later adolescence - and I am thinking here of a windfall at 18 which would throw most people off track.
A discretionary trust is not always a tax disaster – if for example it invested in property in which the children had their main home, there would be no income arising and, because the trustees could claim principal private residence relief through the occupation of the beneficiaries, no capital gains tax. Later in life, the trust could be used as a an inheritance tax saving vehicle, by lending to the children against an obligation to repay. Obviously you would want the trust fund to be kept below the nil rate band. This is where more than one trust would help.
If the whole of the death in service benefit does not necessarily have to be paid out on the same day, then it is worth considering whether more than one trust could be used to receive the benefit, with the trusts in question having been set up on separate days. Again, the method of payment out is something to explore with the trustees. I think this is something that needs looking at, but it is worth pursuing.
Yes I agree, but it may not be so if the DISB proceeds were not previously held in trust (I used the word trustees loosely for sake of brevity). I understand that sometimes these are insurance based arrangements.
But you are (of course!) right Simon, if they start off in one trust, but are split in two, they are still comprised in the original fund for Inheritance Tax purposes.