Trust Fund Dilemma.

Vicky07

My recently widowed mother, has been considering setting up a discretionary trust. Having spoken with a Solicitor she has been put off the idea by being told it is 'fraught with danger'.

I would be grateful if anyone has experienced these dangers, and also what her best course of action would be?

Thank you.

xylophone

The tax treatment can be complex. Somebody has to administer the trust.
It is usual to have at least two Trustees but often three; one professional Trustee may be considered advisable, particularly when large sums are involved. Trust tax returns may be required.
A Trust bank account is required. Trustees should have regular meetings etc etc.
http://www.hmrc.gov.uk/trusts/types/discretionary-accum.htm

A firm of solicitors with a partner who is a full member of STEP could advise?
http://www.step.org/system_pages/call_to_action_navigation/member_search.aspx?link=header-menu
What are the reasons for wishing to set up a Trust?

Vicky07

Thank you.

Basically as her income is now quite limited, (her own state pension is very small having only worked briefly before I was born) and having now half of my Dad's pension she wanted to protect her savings and house in case of any future care needs.

I should add that she is a very fit & healthy 74 yr old and at the moment would not need to go into care.

dunstonh

she wanted to protect her savings and house in case of any future care needs.

Has she taken a look at the quality of local authority care? It would almost certainly put her right off spending her days like that.

sleepless_saver

This makes no sense to me. If her income is low, why shouldn't she supplement it with her savings to be able to enjoy more of the good things in life. And if she did turn out to need care, that is exactly the time when savings and a house can come in very useful to be able to exercise choice and get the best care possible.

If she is planning this trust in anticipation of future care needs, however fit she is at the moment, she could be considered to have deprived herself of assets in order to get state funding - especially if there is no other apparent reason why a trust would be a good idea.

xylophone

Basically as her income is now quite limited, (her own state pension is very small having only worked briefly before I was born)

Can she not claim a better state pension on your father's contributions, basic and serps if applicable? http://www.direct.gov.uk/en/Pensionsandretirementplanning/StatePension/Basicstatepension/DG_10026707
http://webarchive.nationalarchives.gov.uk/+/www.direct.gov.uk/en/CaringForSomeone/CareHomes/DG_10031523

Debt_Free_Chick

Vicky07 wrote: »

she wanted to protect her savings and house in case of any future care needs.

Putting her money in trust almost certainly won't work, though - perhaps this is what the solicitor meant? Deliberately depriving yourself of money in order to claim/access state/council assistance like care fees means that you don't qualify for that assistance.

SeniorSam

HI Vicky07,

Discretionary Trusts need not be fraught with danger at all. Unfortunately, far to many solicitors lack knowledge of these Trusts ans shy away from them and some have no idea whatsoever.

A Discretionary Trust can be set up with an Investment Bond which uses life funds. As such, they do not produce an INCOME and where no income is produced, then there is no need for a tax return to be made.

Selecting the right, low risk funds is important, but with the right guidance, should not be a problem, but you do need someone who knows what they are doing and is fully conversant with Trusts and the working of them. Solicitors that are STEP qualified are the best, but they can only advise you on the Trust itself, not the investment vehicle. For that you need a GOOD IFA.

A minimum of two Trustees will be needed, but you could have more. Family members can be good, but all Trustees must agree to make any changes required. Trustees can me loans of any amount to whoever they please, so could in fact loan sums of money on an add hoc basis to your mother and she can do what she likes with the money.

On her death, the loaned money will count as a debt against her estate value and as such, the value should be maintained, subject to any growth.

It is correct that someone who has the idea that taking this action will reduce the estate value and so enable care costs to be met by the State is mistaken, Action made specifically for that purpose will fail.

The other avenue would be for your mother to set up a LOAN TRUST. This is where she loans money to the trustees, who then invest in a Bond which is held in Trust. A good IFA who deals with Trust matters will help you with more details and how loans can be made to your mother.

Do not be frightened of Trusts. They are not so bad and have been used by thousands of people to good effect.

Hope this helps

Sam