Please help....Nil rate Discretionary Trust

tjp_2

Please help as I am desperately confused and panicking

My Father died a few months ago and had a nil rate band discretionary trust in his will. The Beneficiary is my Mother and she and I are both Trustees. I will then be the sole inheritor when my Mother dies. At the moment a solicitor has dealt with probate/tax form completion etc and is waiting for me to open bank accounts to put his savings into as they are still in his accounts (I didn't want them to go into Solicitor's 'client account' as I thought they might still be earning interest remaining in his accounts but not sure).

I am totally lost on what to do or how to do it sigh. My Mom is more than clueless and I have had no dealings at all with savings/investments etc - I have one current account and one ISA....and that's only because my Dad nagged me into opening one. My Dad's estate is worth £400,000.00 and Mom's estate will be the same - this includes a half share each in their property (tenants in common) equalling £150,000.00 each and in the property I live in (rent free) worth about £56,000.00 each. So Dad's cash/savings are about £275,000.00 plus the half share of each of the 2 properties.

Firstly I am trying to find bank accounts to open to initially move the monies from his bank accounts until I am able to work out what to do with them. I understand this to be fraught with difficulties...? It seems that not many banks will accept Trustee accounts (I have done a forum search to see if there is advice already here) or pay 0% interest. Also due to the amount of savings I think I will need 4 accounts to make sure there is not over £85,00.00 in each (for financial protection).

Mostly though I don't know what to do afterwards....I obviously cannot work out how to invest them myself and it seems I will also want to avoid them generating an income (for tax return reasons I think?). I am really worried though about how to find a good, trustworthy IFA who is familiar with Trusts and the needs we would have. I don't want it to be too obvious that I am the complete financial novice that I am but I am also scared that I could be completely ripped off and not even realise it!

Has anyone been in a similar situation please and able to offer any advice? I am finding this really difficult as I am so sad at my Father's death and so clueless on all but the most basic of money management....it's never been something I had any interest in though it was a consuming passion of my Dads sigh (hence the savings he managed to build up).

Many thanks for anyone taking the time to read this.

kidmugsy

i) as a short term solution, ask the lawyer whether the terms of the trust allow the trustees to make loans to the beneficiary (your mother), interest-free and recallable on demand. If so she could open four suitable personal bank accounts to bung the money in. Then when you've sorted out trust accounts you could recall the money. (If the lawyer cautions against this, heed him and ignore my musings.)

ii) With the time that's bought, you could investigate trust accounts (I've seen the advice to ask about Nominee Accounts, since "trust accounts" allegedly bewilders many bank staff.) Providers I've seen mentioned include BSs (Skipton, Principality, Leeds and Beverley) and Banks (including Clydesdale, Scottish Widows Bank, Investec, Cater Allen, Julian Hodge, Butterfield): I can't vouch for any of them.

iii) I've no experience with IFAs: let's hope someone else will come along and opine.

tjp_2

Kidmugsy - thank you so much for kindly taking the time to read and post. Those are all very good ideas and I am pretty sure that the Trust terms were as flexible as can be and do allow loans to the beneficiary (I'm sure my Dad mentioned that) so I will definitely look into that. Also thank you for the info on the bank accounts - the only one I've found so far is Scottish Widows but even that talks about the "existing Trust account" which is exactly the problem as we can't seem to open one! But I will look into the others so thank you so much :T

xylophone

I an very surprised that your solicitor is unable to assist you in this matter. Was it he who drew up the will that created the trust? If he cannot help and you need further assistance then you would be wise to consult a STEP solicitor for specialist advice? http://www.step.org/system_pages/call_to_action_navigation/search_for_a_step_member.aspx?link=link
http://www.willpeople.co.uk/iht.htm - this might help.
http://www.knightsllp.co.uk/downloads/ttpc/Nil%20rate%20band%20discretionary%20trust%20wills.pdf - more reading.

You must remember that the Trust is a separate legal entity. The Trust Deed will set out the powers of the Trustees.

You can open a Trust Bank Account as a first step - this will be in the names of the Trustees of the Will Trust and any trust cash can be placed here as a starting point. Any of the high street banks should be able to open such an account. You will need to advise HMRC of the existence of the Trust and if the Trust accrues income then a Trust tax return will have to be made annually.

See http://www.hmrc.gov.uk/manuals/tsemmanual/tsem1420.htm

http://www.hmrc.gov.uk/trusts/types/discretionary-accum.htm

Investments can then be made from this account - it would be possible for money to be placed in the name of the Trustees in deposit accounts, stocks and shares, gilts etc etc.

You will see from the above that there is a strict HMRC regime to follow in respect of income and how it is taxed.

It may be simpler for the trust to agree to make a loan to the beneficiaries of the cash assets of the Trust, in which case HMRC may agree that a yearly tax return is not necessary.

This needs to be formally drawn up and any repayment terms/indexing etc set out.

Since the nil rate band is £325000 http://www.hmrc.gov.uk/inheritancetax/intro/basics.htm and it appears that there is not enough in cash, will part of the trust be satisfied by the transfer of your father's share in a property? This too might need care.

It may be that you will decide that the Trust is more than you want to cope with - see link above.

tjp_2

Xylophone thank you so much for taking the time to write all that information for me. I am desperately trying to read up on all of this and will look through the links you have so kindly given me.

I like the idea of the loan to the Beneficiary (my Mom) but wasn't sure if this would be problematic as she already has the equal of his savings and shares in the properties (ie cash/shares/accounts to the value of £275,000 plus half share of their home at £105,000.00 and half share of the property I live in which is £56,000.00). I thought HRMC might see this as some kind of contrived arrangement (to avoid tax payments?) if we did this....unless it was only a very short term arrangement just to get the monies from Dad's estate into bank accounts. My Mom (as Sole Beneficiary and joint trustee with myself) would be more than happy to put anything in my name now if it made anything 'easier' or more straightforward....but then I think there will be issues of CGT and IHT from 'gifting' etc. I live in the one property (total value of £112,000.00) which is named in the Trust/Will Deed although actually it is still with Land Registery in my late Grandmother's name (Mother's Mother) and she was the sole beneficiary of Grandma's (straightforward) will - but they never got round to transferring the Deeds to my Mom.

My Dad had been careful to keep his savings halved between him and my Mom so they both had roughly the same (for the DT purposes). His half of their marital home (Tenants in Common) will be changed with Land Registry to the Trust name or at least a restriction charge (I think that's what it is) placed on it. The Solicitor that originally drew up the Will Trust has since gone 'bump' and no longer exists, but I have used a reputable (large) firm of Solicitors to deal with Probate. I guess I was hoping to be able to read up/learn enough to try and administer the estate myself rather than incur large costs from ongoing administration (Solicitors, Accountants etc). I'm not sure if the value of the Trust makes it more worthwhile for me to try and administer it or whether it is worth the money to have other people do it....and then, how do I find someone 'trustworthy'....there's so many nightmare stories around :huh:

You are quite right....the Trust is far more than I want to cope with as someone who has never had any interest in/knowledge of the financial sector this is a nightmare to me! But at the same time I feel I 'owe' it to my Dad who worked so hard and spent so many hours building up his savings to do what I can to learn about it and do as much as I can myself to save costs.....sigh. It will already have cost about £6,000.00 just putting the estate through Probate via the Solicitors (lots of accounts/shares and tracing house deeds). I did use an 'expensive' firm as I wanted to be confident it was all done right - but my Dad would be turning in his grave if he saw how much of his money it had cost!

Thank you again though - you have been very kind....I know how much of people's time it takes to write and answer these posts and I am extremely grateful.

xylophone

Do read all the above links. You sound out of your depth and I cannot too strongly urge you to get expert advice if you actually are - believe me, if you get the administration of a Trust in a pickle, particularly with regard to taxation, you can end up paying far more than you would have done had you taken expert advice in the first place.

If you are going to set up the Trust, then do it in accordance with the rules and make sure that any loan agreements are legally binding and watertight.

xylophone

And incidentally, I think that you need to check the actual ownership of the property in which you live. You say that it belonged to your grandmother who left it to your mother (who was the sole beneficiary of her mother's will) but that the executor never transferred the property into your mother's name - you then go on to say that your father had a half share in this property? This could only have happened had your mother gifted him a half share in which case this would have been recorded at the Land Registry?

kidmugsy

tjp wrote: »

I thought HRMC might see this as some kind of contrived arrangement (to avoid tax payments?) if we did this....unless it was only a very short term arrangement just to get the monies from Dad's estate into bank accounts.

You certainly don't want HMRC deciding that your trust is a "sham trust" which is why I suggested the loans to your mother as only a temporary solution: if you wanted to lend her the money long term you'd probably want to charge interest on it and get the security of a "charge" over the property.

I agree with xylophone, both with "I an very surprised that your solicitor is unable to assist you in this matter" and with your need to pay (with trust funds, not your own) for professional advice.

tjp_2

Once again many thanks to both of you for your input - very much appreciated!

Xylophone....I agree, it is strange re the property being in the Will (think this was on the original Solicitor's advice that as they were married and it was left to my Mom it was 'theirs' rather than 'hers'?) - my Mom was supposedly Executor but in actual fact my Dad dealt with it all. It's definitely still in my Grandma's name as not too long ago I checked it with Land Registry and downloaded a 'register extract' for it as we were going to transfer it from Mom's name to mine (as my parents were happy to do that) but then Dad got ill and it just never happened. Still not sure what would be best to do with that - the current Solicitor's did say they could look into it, but after all the current probate/accounts were dealt with.

Kidmugsy yes I agree that the short term loan would be a good idea and I will look into (seek advice on that).

Out of interest....who would you both think I would be best contacting to sort this all out....Independent Financial Advisor, Tax Expert specialising in Trusts, Accountant, Solicitors, all of those or someone else.....? There seem to be so many strands to sorting all of this out that I'm not quite sure with whom or where to start!!

Many thanks for continuing to look in on this thread, I'm extremely grateful that as total strangers you take the time to offer your input here.

xylophone

You need to be absolutely certain about who owns the house in which you live - from what you have said so far, it would appear to belong solely to your mother, even though it was never transferred into her name?

You need the advice of a solicitor who understands Trust law and how to administer a Trust, and also understands tax law as it relates to trusts. If the house does indeed belong to your mother and she wishes to make you a gift of the house you will need advice about PETS and CGT.
http://www.hmrc.gov.uk/inheritancetax/pass-money-property/exempt-gifts.htm



You could try the STEP site if your present man can't help, but be sure that you have done all the necessary reading so that you can write up a list of questions about any points that puzzle you. See the links in my previous post.

DRS1

I agree with Xylophone. You need to be clear who currently owns the house you live in and that needs to be sorted as part of the probate because if it is 100% your mother's then you don't want it included in your father's estate when you put in the IHT return as part of probate. The solicitors probably meant the bit about transferring the house to you when they said that could wait until after probate.

If they are a big firm of solicitors then they probably have the expertise you need but it would be wise to look them up to see if they belong to STEP.