Lifetime discretionary trust

Good afternoon, my father set up a lifetime discretionary trust in September 2015 to include just his residential property, with myself and my sister as trustees and the only beneficiaries. My dad has now passed away so my question is, do my sister and I need to now terminate the trust or will this happen automatically after the property is sold as there will be no assets left in the trust? I have read if we just leave the trust as it is, there are charges every 10 years? I’m struggling to get any advice, the company who sold my father the trust says “they sell trusts but we do not advise on them” which is extremely unhelpful.

The use of these trusts is complicated and so I would strongly urge you to take professional advice. It is impossible to give generic advice for trusts as they are all different but there is no particular reason that the trust should have come to an end on your father’s death.

The inheritance consequences of the trust will also be complicated as (a) the property is likely to be a reservation of benefit so within your father’s estate for IHT and (b) will likely mean that your father’s estate can’t use the additional nil rate band, so it may incur additional inheritance tax.

Pure speculation on my part (and I could well be wrong) but that problem may be why the business who “sold” the trust does not want to advise on any problems it may have caused.

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You say your father set up a lifetime discretionary trust and you along with your sister are the only beneficiaries.

The terms of the trust will determine what can and can’t be done, but if it’s the type of trust I think it is the trustees have discretion as to the distribution of trust assets to the potential beneficiaries ( your sister and yourself) . The trust may also refer to other un-named or a class of beneficiaries but usually there is some direction as to his wishes in a separate document or letter, do you have that?

The 10 year periodic charge is a test to see if any tax is due so you really need to put more meat in the bones with figures.

In principle you can distribute the assets in accordance with the trust but you really need to have an understanding first. Do you know if the trust was registered?

I agree there is no substitute for professional advice here - particularly as it’s unclear on the facts presented so far why your Father would have been ‘sold’ the Trust in the first place!.

As well as the trust registration question it seems likely that IHT forms (and possibly payment of tax) will be required either on the 10 year anniversary in September 2025 or earlier distribution of the proceeds, as well as the impact on his probate / Estate position. Finally, if your father was not a beneficiary there could be a capital gain to declare by the trustees. This, however, might seem inconsistent with the facts if by ‘his residential property’ you mean that he lived there - unless he paid a market rent with other tax consequences!

As Peter says, the impact will very much depend on the relevant figures, but there is certainly much to work through!