Is it arguable that, if a settlor chooses to organise their financial affairs by using a discretionary trust, then the professional fees for maintaining that trust should be borne by that settlor?
That is, the fees do not have to be paid from the trust’s funds.
If the settlor pays the trust management expenses they will not be deductible in arriving at the trusts’s taxable income (see TSEM8000). A person who is not otherwise the settlor may make himself one for income tax by doing so.
The settlor makes a TOV: they are not his liability and no right of reimbursement unless the trust so provides or the trustees agree or he acts as their agent. Reimbursement voluntarily by the trustees would make him liable on the entire trust income as retaining an interest unde ITTOIA s624. There is no proportionality here. The trust specifically providing him with a right of reimbursement would also be caught by s 624. On the contrary the common exclusion from benefit clause would make reimbursement a breach of trust.
It might well be an addition to an RPT: s67 IHTA. Depends on the amount.
Lending the funds to the trustees can be problematic under ITTOIA s633 if and when they are reimbursed if the tust yields income. If the settlor can afford it an open-ended loan repaid in the tax year after death may be the least of the evils. This may be a TOV unless repayable on demand which may be uncomfortable for the trustees. Interest should not be charged because of s624 if that matters (the trust may not produce taxable income). The borrowing should be deductible for RPT IHT charges.
Ideally the trustees should pay them from trust funds, either cash initially settled or sale proceeds of trust assets. Funding future trust IHT charges creates a similar dilemma.
Jack Harper