bare/discretionary trusts

Cornish1960

My childrens Grandfather wishes to gift a large sum of money to them. I have researched and decided that the best course of action is to set up a trust. However can anyone help? Their Grandfather lives in Germany and is a tax paying German citizen. Can he set up, say with a trusted UK friend, a bare or discretionary trust, as I believe if the parents do so, that we may be liable for income and capital gains tax the monies benefit from if invested in stocks and shares which rise in value and pay dividends. I am assuming he will live for 7 years and thus avoid IHT.

Many thanks

Reaper

As long as the money is donated by the grandfather it does not matter that the parents set up the trust and run it as the Trustees, the money will still count as being the child's for tax purposes.

The only sticking point I found is the particular company I used wanted the money to come from our (parents) bank account and would not accept money from a variety of different people. If you encounter that then our solution was just to make sure we kept correspondence about it plus a note of cheque numbers/amounts in case the tax man ever queries the source of the funds. We can show the money was just passing through our bank account and was never intended for us.

xylophone

There is a difference between a bare and a discretionary trust and in tax treatment.http://www.hmrc.gov.uk/trusts/types/

You would be well advised to take professional advice.
http://www.step.org/online-directory

antrobus

Cornish1960 wrote: »

My childrens Grandfather wishes to gift a large sum of money to them. I have researched and decided that the best course of action is to set up a trust. However can anyone help? Their Grandfather lives in Germany and is a tax paying German citizen. Can he set up, say with a trusted UK friend, a bare or discretionary trust,...

Bare trusts and discretionary trusts are two different things. Setting up a discretionary trust would require a trust deed. A bare trust would be created if the grandfather simply sent you a cheque with the instructions 'this money is for my grandchildren.'

Cornish1960 wrote: »

....as I believe if the parents do so, that we may be liable for income and capital gains tax the monies benefit from if invested in stocks and shares which rise in value and pay dividends.

You belief is not correct. It's the source of the funds that matters, not who acts as trustee. If a parent gifts money to a child that produces more £X a year, that income is normally taxed as belonging to theparent. However if a grandparent gifts money there is no such rule.

Cornish1960 wrote: »

...I am assuming he will live for 7 years and thus avoid IHT....

If grandfather lives in Germany and is a tax paying German citizen, he may have already avoided IHT by virtue of acquiring a German domicile. Of course the Germans likely have their own version of IHT, and I have no idea how that operates.