Hi, I am a co-trustee and co-beneficiary on a Discretionary Trust that was set up via my mothers will. My mother has now died and along with the other trustee I’m wanting to set up a trust bank account.
This trust is primarily intended for my brother who has learning difficulties.
I’m struggling really to know what to do. How easy is it to register the trust with hmrc?
There will be about £73k to go in the trust account. I dont fancy doing the tax return every year and I really dont know what we will be liable for with regard to income tax etc everytime a withdrawal is made from the account.
Who do I see? A tax advisor? Solicitor?
Any help or advice would be greatly appreciated.
Hello Lisa,
This is a situation where there are a lot of technical complexities involved, but where the value of the trust is small. Your priority seems to be to keep things as simple as possible and to minimise fees and tax.
You describe the purpose of the trust as being primarily for the benefit of your brother who has learning difficulties. One factor to take into account is your brother’s financial position and his income and expenditure. Also his living arrangements.
Often in these cases the challenge is to identify the right questions - knowing and understanding what the issues are can help you find an appropriate adviser. The following are some of the issues you should consider:-
- When did the deceased die? If within the last two years then the trust could be wound up under S.144 with certain advantages
- Is your brother in receipt of any welfare benefits? If so, then receipt of capital from the trust could prejudice his entitlement to benefits.
- Is your brother’s condition such that he would qualify as a disabled or vulnerable person for the purposes of establishing a Vulnerable/Disabled Person’s Trust, which has certain tax advantages and which could be a mechanism to preserve his entitlement to benefits?
- Retaining the discretionary trust will involve registration with HMRC and filing of an annual tax return. Expect to pay around £400 for a professional to register the trust for you and between £400 and £600 a year if agents file tax returns for you.
- As trustees you will need to take advice on the investment of the trust monies. What are your intentions? Investment of £65-70k does not justify anything complicated and it may be that you might prefer to leave the funds on deposit earning some interest?
- How do you envisage the trust funds being used? Will it be to fund his everyday living with regular standing withdrawals or will it be an ‘occasional’ fund to buy capital items, fund holidays or be a reserve/safety net? The trustees should formally document all decisions and understand the tax implications of distributions.
When we are approached by Lay trustees we often recommend them paying for an initial report setting out the duties/responsibilities of the trustees, the types of decisions they will need to take, pros and cons of retaining the discretionary trust or using S.144 to distribute, taking decisions about which beneficiaries should receive what and when, whether to resettle onto a Vulnerable Person’s trust, investment responsibilities, balancing the interests of all beneficiaries, tax implications and practical issues such as how to keep records, what files to maintain and banking arrangements.
You should expect to pay around £2,000 for that type of advice, and then have ongoing annual charges as set out above. So be prepared to budget for between £5,000 and £8,000 for initial advice and the first two or three years of compliance, support and tax advice.
Apologies to other forum members for quoting figures. I wouldn’t wish to expose the forum to any charges of anti-competitive behaviour. But I do feel that historically many families have been rightly advised to create nil rate band discretionary trusts for historic IHT planning purposes. When it comes to implementing them, clients often understand what they want to achieve with the trusts without understanding the complexities and technicalities involved - which unfortunately often come with a cost that seems disproportionate.
Michael McCabe
Galloways Accounting Trust Corporation Limited.
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Good advice Michael. And ballpark figures for the cost of advice are very useful for lay members of the Forum.
Jack Harper
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Thank you Michael for the advice. I really appreciate you taking the time to post. It’s given me a lot to think about.
The deceased died just over two years ago now. My brother’s condition would qualify him for a Vulnerable Persons Trust, but I suppose that’s out of the question now?
With the money, we intend to put it into a trustee bank account. There’s not a lot of choice with regards to the bank accounts. We were thinking of going with Metro bank as they have a branch nearby and then putting some money into some NS&I bonds, as has been suggested on here, which would generate some interest for the account.
My brother doesn’t need the money for day to day living. It will be used to fund occasional items, such as holidays etc.
I have made an appointment with a solicitor this week, so I’m hoping to get some advice and help.
Thank you again for the advice.
Would this be a suitable opportunity to mention Deeds of Variation or Deeds of Family Arrangement (depending on the location of the testator)? I accept that in this particular case, it is past the two year deadline, but a mention of the topic may be of use to others.
And I also wonder if it would not be possible for the discretionary trust, depending of course on the terms of the will, to advance its own assets into a vulnerable persons trust, obviating the need for it to continue for any length of time?
Hi Michael
I never comment on these forums but find the questions and answers interesting reading. I felt obligated to put something in print to say what a fantastic answer to someone who was clearly struggling with the processes. A credit to your profession.
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