I was taught that the Settlor in the most simple terms is the person that SETS UP the trust (for Settlor read ‘setter-upperer’). So unless the trust is set up verbally (and it can be apparently) then whoever set up the trust deed or other document would be the settlor.
Hi Neil
A minor is not deemed to have the legal capacity to enter into any legal arrangement, so cannot be a settlor.
Hi Francesca,
Agreed, hadn’t realised I’d suggested they could TBH. I can’t see an occasion where a settlor would be a minor but I suppose we have some very entrepreneurial 17 yr olds these days!
As Malcolm says the settlor is the person who provides the assets in the Trust, ie the person who settles the assets. In this case there are a large number of settlors.
Simon Northcott
Having listened to many forums on the Trust Registration Service I doubt HMRC will even go there if the initial Settlor is listed. They keep changing the rules so many times in my humble opinion I doubt they’d make issue with a genuine attempt to register! And if they do, say sorry.
Thank you for all your comments. I believe you are all correct depending on which tax regime we are looking at.
I have spoken to HMRC for some clarification. The person I spoke to confirmed that for the purposes of the TRS, the settlor is the person who set up the trust - the one who prepared and signed the Trust deed.
In this case, it was the parents who set up the trust for the child and signed the Trust deed and so they have been named as the Settlors on the TRS.
However, for income tax purposes, the parents are not the settlors as they did not gift any of the money to the child. In this case, the grandparents and others who gifted money to the child are the settlors as they provided the assets in the trust.
Robyn’s post states:
"I have spoken to HMRC for some clarification. The person I spoke to confirmed that for the purposes of the TRS, the settlor is the person who set up the trust - the one who prepared and signed the Trust deed.
Clearly this is a nonsense. Taken literally, the person who prepared the trust deed is irrelevant.
Their own Manual provides, correctly:
“The settlor is the person who settles property into the trust”
[Para 32040 of HMRC TRS Manual]
Malcolm Finney
Being a bit pedantic, I believe Francesca’s post is not strictly correct. For example, a minor can settle an equitable interest in land (albeit not a legal estate in land).
I think the major problem is that where a minor purports to create a valid express trust the trust is voidable until the minor attains majority (age 18).
There is also presumably the issue as to whether a minor, for the sake of argument, say, aged 1 to 10, is able to appreciate what he is actually doing when seeking to settle property because if not the trust is void in any event.
Malcolm Finney
Grandparents settlor, child beneficiary, parents trustees.
I’m not sure how the grandparents can be the settlors. The money is an accumulation of various things - cash gifts from many different people but that money now belongs to the child - and if anyone is holding it on bare trust for the child it is the parents who have accepted that money on behalf of the minor child. If the child were over 18 they would be the Settlor, not the people who had previously gifted money.
And so that follows that the parents are the Settlors on behalf of the child as he does not have the legal capacity to sign the Trust Deed?? Malcolm’s point about whether the trust is even valid is a whole other point!!
EMyers, the parents of the minor are not in a position to settle any monies (eg received from grandparents) as it is not theirs to settle. If the parents receive monies from grandparents on behalf of the grandchild they hold such monies as trustees/nominees. The provider of the trust property (ie the monies) are the grandparents.
If grandparents physically handed over a £10 note to the minor, no trust arises and the gift is an absolute gift to the minor.
If grandparents physically handed over a £10 note to the parents saying that this is a gift to the minor, at the time of receipt by the parents they (ie parents) then hold the £10 note as bare trustees for the minor. The grandparents are the settlors not the parents.
If grandparents transferred £10 from their own bank account to the parents’ own bank account stating that the £10 is a gift to the minor, at the time of receipt the parents are holding the £10 as bare trustees for the minor. Again the settlors are the grandparents not the parents. Indeed, if the parents then opened a new bank account in their name but identified as “trustees for Minor” and transferred £10 to this new account, again the settlors are grandparents and not parents.
In none of the above are the parents gifting/settling any property.
I don’t think one can say “the parents are the settlors on behalf of the child”.
Malcolm Finney
@malcfinney1 in your first situation above, grandparents give £10 note to minor. That £10 note goes into the minor’s bank account. The parents then decide to use that money on the minor’s behalf to buy an investment property. Who would you say is the settlor in that situation?
Hi Malcolm, really interesting thread and I totally agree that the settlor is the person that settled the money.
But out of curiosity say for example each birthday/Christmas etc my child gets given money and I say that they can spend £x and put £y into a bank account in their own name. As parent I am on as a signatory but the bank account is in their name. This would be a gift to the minor and no trust is involved. Roll forward and the amount of money in the bank account is enough to buy a house (if only) but as my minor child can’t be put on the Land Registry me as the parent buys the house on trust for the child.
Even though the original money comprised of outright gifts I assume we still need to go back to where the money comes from for the TRS?
Kim
The child is still the settlor. Being under age, the law allows the parents as guardian/legal representative to act on his behalf but the child is always the settlor
Sometimes providing examples in an attempt to illustrate a point actually results in greater confusion. Apologies if that is the result of my examples above.
Re-reading the posts RD’s second post, Kim’s last post and EMyers last post each, I think, raise the same issue.
I believe two possible scenarios may arise with different settlors.
If grandparents (G) inform their minor (M) grandchild’s parents (P) that they wish to give M say £X and have accordingly transferred £X into P’s own bank account (as M doesn’t possess one) then P will hold the £X on a bare trust with M as the sole beneficiary.
G is the settlor; P the trustee and M the beneficiary.
Assume £X is itself sufficient to purchase a property or assume over time G continues to add additional monies to P’s bank account for M’s benefit and at some point there is sufficient monies in the account to purchase a property.
P (as trustee) believes that it would be in M’s best interest for a property to be purchased (instead of simply holding monies on deposit) and proceeds to effect the purchase. Legal title will be held in P’s name as bare trustee (M, as a minor, being unable to possess such title) for the benefit of M. The nature of the trust property has changed from monies into real estate. However, the settlor of the trust remains G. Only G provided the trust property ie the monies. Neither P nor M are settlors.
The situation would be different if M held a bank account in their own name alone (which, although possibly unusual, is legally and practically possible). If G in this case transferred monies directly into M’s bank account then no trust arises as the gift is an absolute gift from G to M. If M decides to purchase a property (or P suggests to M that this would be a good idea) then, as M cannot hold legal title, P effects the purchase and holds legal title in their own name but on bare trust for M, the beneficiary.
In this scenario, the settlor would be M; the trustee P; beneficiary M.
Hope this doesn’t confuse.
Malcolm Finney
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@malcfinney1 has of course covered this more than expertly, but this is nonsense from HMRC - not least because a trust can of course be created without a deed being prepared or signed…
There are people within HMRC who know a great deal about the law of trusts and their taxation. As an example the pages following CG65400 concerning PPR and common intention constructive trusts/ proprietary estoppel. It seems clear from the controversies over what trusts are excluded from TRS that those in HMRC instructing the drafter of Schedule 3A to SI 2017/692
were not among that august cadre. Nonsense in, nonsense out. Taxation or regulatory law that is applicable by reference to well-established legal concepts should be based on a solid jurisprudential understanding of them.
Jack Harper
Is not a part of the problem (if not the essence of it) that TRS stems from a European Directive?
Paul Saunders FCIB TEP
Independent Trust Consultant
Providing support and advice to fellow professionals
Mais Oui! ¡Claro que si! Selbstverständlich! Certamente! Boutros Boutros Ghali! Eurononsense.
Jack Harper
“Eurononsense” perpetrated in part by HMRC and others who refused to have the trust correctly categorised and defined as a property law mechanism - a truth of which, incidentally the French were perfectly aware. Put préjudice into any system, you get garbage out.