Trust for a minor via intestacy

Trusts Discussion
#1

I came across this interesting forum when looking for information on a trust for a minor.
I am a retired chartered engineer and reluctant amateur solicitor, but signed on anyway, possibly to be thrown off soon!
But while I am here I should be grateful for any advice on the following.
I am one of two administrators of my late daughter’s estate, who died intestate some three years ago leaving three adult children from a previous marriage and one minor child jointly with an unmarried partner. Following a claim on her estate by the partner (including from his own child!) and some expensive legal costs, the adult beneficiaries have received the bulk of their shares, leaving only the minor’s share to be dealt with. I would add that the minor is now being properly cared for by his father, who accepts that he had no say in how his share was invested.
Attempting to avoid further legal expense to the minor’s share, as statutory trustees, we have arranged a lump sum investment via an IFA, which is intended to benefit him when he comes of age at 18 years old. This investment will have eight years to run.

  1. Is this a Discretionary Trust or a Bare Trust?
  2. As I may not be around for another eight years, we may transfer trustee responsibilities to others by Deed of Retirement and Appointment. As we are statutory trustees, does this raise any particular problems?
  3. Can I leave ‘instructions’ for the new trustees which they must follow, or perhaps just a ‘letter of wishes’, regarding decisions on access to the fund?
  4. I believe that a willed trust can define an age 18 trust or an 18 to 25 trust. My reading of the 2000 Act (and IHTM42815) is that with a statutory trust, the beneficiary has an absolute right to the inheritance at age 18. If at the time, trustees consider that it is not in the best interests of the beneficiary to allow access at age 18 (e.g. on drugs) can they refuse, possibly up to age 25? Might this require a court order?
  5. I believe that access on earlier marriage would normally be permitted, or exceptionally, earlier by deed of arrangement.
  6. The beneficiary is probably classified as ‘a relevant person’, a ‘vulnerable person’ and/or a ‘bereaved minor’. I am not sure what the difference in law is between the first two. A ‘bereaved minor’ qualifies for special IHT treatment up to age 18. I had wondered whether the beneficiary’s element of IHT originally paid after probate might be reclaimed, but I guess that this is pushing luck?
  7. When considering registering the trust with HMRC via Form 41g, since there is no income to the trust, this does not appear to be necessary. However, when attempting to advise online as a bereaved minor using Form VPE1, a question asks for the tax reference of the trust or settlement. So should I register anyway?
    (Have just seen the topic that Form 41g has been withdrawn – so presumably just a letter?)
  8. I am also unclear at what date the trust or settlement was created?
    So many questions! Am I pushing my luck?
    Graham Brownlee

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#2

I will have a go:

  1. Neither, it is perhaps best described as a trust for a bereaved minor, formerly known as an accumulation and maintenance (A&M) trust. By default it would suffer income tax as a discretionary trust but you can elect for it to be taxed as a trust for a vulnerable person in years that income arises to avoid paying the usual 45% rate. The regime also allows you to claim reduced CGT on gains and holdover relief for CGT if there are assets standing at a gain that you want to pass to the beneficiary when they turn 18.

  2. Not particularly - you would use the statutory power under s.36 Trustee Act 1925.

  3. You can leave expressions of wishes but you cannot bind your successors in the exercise of their discretion.

  4. This is correct. Trustees can (if they have very good reason) exercise the statutory power of advancement to extend trusts beyond 18 but if your daughter died before October 2014, this power only covers a maximum of one half of the fund. You would need to take action before the beneficiary reached 18 and, to cover the whole, would need a court to consent on behalf of the beneficiary under the Variation of Trusts Act 1958. There could be tax consequences (the significance depends on the value).

  5. The beneficiary becomes absolutely entitled on earlier marriage. You can also pay out income at any time and advance up to one half to the child or for their benefit at any time before they become entitled under the statutory power mentioned above.

  6. There is an IHT benefit for a bereaved minor but not on the original death - it avoids IHT on 10 year anniversaries of the trust and on capital being distributed from the trust. The vulnerable persons regime for income and capital gains taxes allows you to make an election each year so that the trust is taxed at the beneficiary’s marginal rates rather than the usual trust rates.

  7. 41G is being replaced by the trust register, via an online portal which is due to go live “this Summer”. In practice this could mean anytime between June and October. The rules are still only in draft but (as they stand) registration will only be required in a year when the trust has a UK tax liability. You need to make the VPE1 election each year that you have a tax liability so there may be no need to make it until you also have to register.

  8. The date of creation will be the date of death.

Andrew Goodman
Osborne Clarke LLP

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#3

Many thanks to Andrew Goodman for the very comprehensive and useful reply to my queries.
Assuming that any interim payments are within permitted limits and the final payment is actually made at age 18, it would appear that no notifications to HMRC will be required.

Graham Brownlee