Bare trust query

xpjpx2000 · 4 May 2016 at 10:32PM

Hi,

A family member recently passed away and left a substantial sum to my toddler. This is going into a bare trust and my partner and I are trustees.

Our solicitor says that as trustees we are able to use the funds from the bare trust to pay for things for our child as they grow up - such as music lessons, school trips etc

However, the financial advisor we are talking to says that as it is a bare trust we will not have the flexibilty to use the funds for anything other than investments.

Our solicitor is a trusts expert so I assume that they're correct but would appreciate some other viewpoints just so I am sure.

Many thanks.
Paul.

bowlhead99 · 4 May 2016 at 11:00PM

Your solicitor is correct in that the money or other assets belongs to the child and there should be no issue utilising it for the child's education and maintenance or even healthcare. When setting up a bare trust it is useful to insert into the trust document something along the lines of "The trustees may pay or apply the income of the trust fund to or for the education, maintenance or benefit of [the named beneficiary of the trust] and shall hold the remaining income on trust for [the named beneficiary of the trust] as an accretion to the trust fund absolutely."; and then it would be clear to anyone examining the trust document exactly what you are supposed to be using the fund for.

While buying children books or getting them a tutor can clearly be classified as 'education', it would be a different matter if you were simply getting them a babysitter so you could go out for a night on the town and avoid your parental / guardianship duties for a few hours. That would be your benefit not theirs. And similarly if you buy yourself a more reliable car so you can go to work in more comfort to earn enough money to pay your rent which you feel they benefit from. If they don't like it, once they hit 18 they could sue your for abusing their trust and misusing their funds.

Your basic powers as a trustee for someone under a simple trust while they're under the age of majority is covered by the Trust Act 1925 - see section 31 and 32. http://www.legislation.gov.uk/ukpga/Geo5/15-16/19/section/31

Sounds like your solicitor understands this but the IFA is understandably nervous about you dipping into the child's assets and treating it as a slush fund without legal signoff. As such, having him build a plan around you having access to spend the money pretty much as you see fit - rather than keep it invested to grow for the child's future - may make him uncomfortable. It would be sensible to let the IFA have a copy of the solicitor's legal advice that says its fine to reserve some of the trust fund for costs such as ABC or DEF, meeting certain criteria XYZ.

Heedtheadvice · 4 May 2016 at 11:10PM

So, you have an expert that is being professionally engaged.......and an accountant who may not be an expert?

(Edit: bowlhead posted as I wrote and I cannot but agree!)
Much good info on the net and yes it can be confusing. Some basic info at www.scottishwidows.CO.UK/ and also very good stuff from Osborne Clark both resulting from a quick Google search of 'bare trust'.
Suggest you read such literature, perhaps that of hmrc and take the solicitor's advice. You may then understand the situation get it all clarified and set out correctly on your period of trusteeship. It is not difficult but can be complicated, need records kept and takes a bit of understanding at the outset.
You will no doubt appreciate the need to discharge your responsibilities including for tax as well as looking after the assets according to trust law and the settlor's instructions.

Well worth the formal advice at the outset but then you may feel that you can then act as trustees without the solicitors input......and cost, which might impact adversely on the beneficiary's assets/income if the assets are not large. It may be a question you wish to ask at the outset!

Not answered your question directly but hope this has helped you.
(Bowlhead nay have answered why the IFA seems to have given conflicting info. As a trustee I got advice from several and they all had their own interpretations of where to invest and which investments and types thereof satisfied the trust's risk and investment need!)

xpjpx2000 · 4 May 2016 at 11:58PM

Thanks bowlhead99, really helpful information and set my mind at rest. We are unlikely to use the funds at all but good to know the option is there if required.

xpjpx2000 · 5 May 2016 at 12:03AM

Thanks Heedtheadvice. I did trust the solicitor's advice but as this is all new territory for me, when the IFA stated the opposite position it made me nervous and I just wanted to clarify the situation in my own head. The responses here have helped a lot.

dunstonh · 5 May 2016 at 9:19AM

They are both possibly right and possibly wrong. There is no 100% rule because trusts can be set up with all sorts of conditions. A frequent one with trusts set up from a Will is that the funds cannot be accessed to a certain age. However, if there is no such request in the Will and no stipulations, they can also be accessed earlier for the benefit of the beneficiary.

This is why advisers and firms providing trust based investments also like to see sight of the Will. Statistically, I would say that most Wills from indirect family members leaving money to nephews/nieces or grandchildren, do tend to state an age they can have the money.

Bare trust query

Comments

Categories

Get our FREE Weekly email full of deals & guides - and it’s spam-free