Banks ripping off Trust funds

footles

My step father died two years ago this week. He put his money into a discretionary trust with HSBC to avoid death duties and to generate income for my 82 year old mother.

HSBC charged £23,000 to set up the trust and are charging in excess of £1100 per quarter to administer it. On setting up, the trust capital was approximately £265,000. The bank’s charges are roughly equal to my mothers income from the trust which is insufficient for her needs. She now has to sell her home of 37 years to make ends meet.

I believe that the total bank charges will exceed the death duties that my step-father sensibly tried to avoid and if he knew he would be turning in his grave. Unfortunately it is my mother who is left in anguish and despair over her future.

How can HSBC possible be allowed to do this? They refuse to speak to anybody but her and she does not know enough about finance to deal with it

Can anyone help her please?

Mrs_pbradley936

Sadly I cannot help you other than to say it is quite usual for banks or solicitors to charge about 5% or more to manage an estate. There are two ways to go – the first being that having professionals in charge will mean that they are au fait with any legalities and can advise you and your loved ones. If you do not have professionals then you have friends or family members, not always for the best if they are ignorant of tax laws and other legalities. The best and cheapest is to have a friend or family member that you can trust and will be clued up. BUT what happens in practice is that as people get older anybody they might have thought to be a good candidate either dies or becomes ill. For peace of mind the person then turns to a professional.

ReportInvestor

footles wrote:

I believe that the total bank charges will exceed the death duties that my step-father sensibly tried to avoid and if he knew he would be turning in his grave. Unfortunately it is my mother who is left in anguish and despair over her future.

Hi footles and welcome to the site.

I don't want to defend banks in this situation - and my own family has suffered from bank mismanagement in the past - but for your mother to be contemplating having to sell up only two years into this arrangement does suggest that your step-father hadn't done his sums when he decided not to leave her his capital in order to avoid IHT.

Sorry. That's an awfully brutal reply, especially as I'm not suggesting a way forward .

Are the bank's charges coming out of income, or is the capital being eroded? Have they managed to grow the legacy in the last two years?
Is the portfolio set up with an income bias that may possibly limit potential growth?

footles wrote:

I believe that the total bank charges will exceed the death duties that my step-father sensibly tried to avoid

If there is no growth on the trust, then I would agree with you that will be the case in about 7 year's time. I do hope for your family's sake that they are managing to grow it.

My sums assume that £288,000 was given to your mother and that it was invested in her name to give 2% income and 3% capital growth [which would have also resulted in more income for your mother ] and that 40% IHT would have been payable on that entire sum + growth on your mum's death.

dunstonh

Banks are notorious for doing this. The positive side is that the trustees can instruct an IFA or discretionary investment manager to take over and that would be far cheaper than the banks. It would also be more effective in the returns as well as banks do have a poor reputation for switching investments far too regularly and charging each time they do.

ReportInvestor

I agree with dh about the banks and "churning". I've seen it at first hand with Lloyds.

dunstonh

I have taken over a portfolio from Lloyds and my other adviser has got one he is attempting to take off their hands. The transaction sheets were just pages and pages of churning for little or no reason. Every time they switched they made a charge on top of the normal dealing charge and they also charged around 1% a year more on top of the natural trail commission that was received from the investment funds (which made up the bulk of the portfolio).

The person they saw to set up the portfolio wasnt the person that managed it. Staff turnover was high so consistency in approach and asset allocation within the portfolio was almost non existent.

EdInvestor

People need to be aware that use of these trusts to avoid IHT can cause more problems than they solve.

Another abuse report about the Natwest

How can HSBC possible be allowed to do this? They refuse to speak to anybody but her and she does not know enough about finance to deal with it.

You mean they will not speak to her if she takes along an advisor?

Looks like the FOS might be the place to go for advice.

https://www.financial-ombudsman.org.uk

dunstonh

financial ombudsman will not take it on unless you have excercised the complaints produre of HSBC.

The bank will no doubt provide evidence that the charges were disclosed. Indeed, I would expect a fee agreement to be in place as well as the charges are above the standard. If you agree high charges, then that is your choice.

I personally dont think you will get far with a complaint to HSBC unless they are unable to support their case due to missing evidence (not likely with a case 2 years old). The best thing is to move the portfolio on....

People need to be aware that use of these trusts to avoid IHT can cause more problems than they solve.

Its not the use of trusts that is an issue. Its the use of the bank. There is no reason for a portfolio in trust to cost any more than a portfolio for normal investing, retirement planning or any other such investment.

ReportInvestor

Perhaps footles can look into the procedures for switching and let us know any HSBC charges for switching .

I imagine that an HSBC trust manager could visit his mother at home, with footles present, if travelling is a problem.

footles

Hi ReportInvestor. Many thanks for your comments. My step-father was already very ill when HSBC advised him and I do not believe that he understood the situation fully. He also left about £100,000 capital however the HSBC's 'Independant' FA told my mother that her income would be about 5% whereas it is about 2%. As a result she spent some of her capital on home improvements and now regrets it. The fund is invested for growth, not income

footles

Hi dunstonh
Many thanks for your interest and advice. You write

'The positive side is that the trustees can instruct an IFA or discretionary investment manager to take over and that would be far cheaper than the banks.'

Do you mean the trustees, who are the HSBC - so why would they, or do you mean either the ultimate beneficiaries who are my brother, sister and me, or the life tennant of the trust who is my mother?