Reducing tax from Discretionary Trust and IHT

whatatwit

arambol wrote: »

Oh.... so it doesn't make any difference either way really.

Not if dad wants to retain control of the money.

arambol

Unfortunately he doesn't really know what he wants. He's bipolar and not doing to well at the moment so helping him see reason is very tricky.

We've tried to get him to seek tax advice but he always backs away at the last minute. That's why I'm here trying to find the best solution.

Thanks guys. Appreciate you assistance.

localhero

OP, the answer is in my previous post (no 3).

The trustees have got complete discretion to divide the estate however they wish between the six beneficiaries, and so strictly speaking you or your father have no say in the matter - though of course in a perfect world it would make sense for your dad to receive some tax advice and for this to be planned sensibly with the cooperation of the trustees.

As you've correctly worked out, if the trustees give money from the trust fund to your dad it will be included in his estate for tax purposes. If he then gives the money to you then that will become a potentially exempt transfer (PET) and he would need to survive for 7 years to get the money out of his estate for IHT purposes.

If your dad doesn't need money from the trust fund and his estate is already near to or above the IHT threshold, it would make sense for the trustees to give 'his' share to you/your sister.

Having done that, it would defeat the object for you to then give the money back to your dad - and so it would make far more sense for you to lend it to him instead if he needs it. If he then dies before repaying you, his estate for inheritance purposes will be reduced by the debt.

Remember though that ultimately the trustees will need to be persuaded to comply with whatever arrangement you and your sister arrive at with your dad.

Hope that helps.

Pee

If it would suit your father best to keep this money in the trust could the current trustees pay out all of the money apart from the share they were proposing to pay to your father and then appoint trustees of your father's choosing, i.e you and your sister, to be trutees of that portion from now on?

If the share was under the IHT threshold you would have to complete a tax return possibly annually but you could probably do this yourself/ get an accountant to do it for less than £100.

This money would then not belong to him for tax or benefits purposes including care fees, or to you or to your sister.

localhero

Pee wrote: »

If it would suit your father best to keep this money in the trust could the current trustees pay out all of the money apart from the share they were proposing to pay to your father and then appoint trustees of your father's choosing, i.e you and your sister, to be trutees of that portion from now on?

If the share was under the IHT threshold you would have to complete a tax return possibly annually but you could probably do this yourself/ get an accountant to do it for less than £100.

This money would then not belong to him for tax or benefits purposes including care fees, or to you or to your sister.

It sounds to me like the OP feels he's paid enough professional fees and wants to wind the trust up. Keeping the trust running will incur more of these and gain little.

There is already a simple solution that is both tax friendly and will keep the the money away from care fees assessment and avoid any more unnecessary costs.