Are you saving for your child?

bowlhead99

xylophone, what you have pulled out from various sources is correct. The trustees do have to give up control when the child requests it.

However:

xylophone wrote:

Reaper wrote:

Baillie Gifford who (controversially) won't pay out when he become an adult until we parents, who are the trustees, permit it

It's certainly controversial. The beneficiary of a bare trust has an absolute right to access and control at the age of 18 (16 in Scotland).

You are reading too much into it - I don't think this is controversial.

The product provider (in this case, BG) who has registered a trustee as a shareholder of their fund cannot simply dissolve that trust and go and act on the wishes of a beneficiary of the trust as distinct from the trustee of the trust who has the investing relationship and title to the shareholding.

If I, John Smith, with my pal Jane Smith, hold assets in trust for little Jimmy Smith who cannot give good receipt for those assets, BG will give me an account in the name of John and Jane the trustees. While the trust still exists (for Little Jimmy's benefit), John and Jane have the legal ability to direct it and Little Jimmy does not have legal title to the assets.

From the age of X, Little Jimmy now Big James has the absolute right to access and control. I must act on his directions. If he wants me to have the Trust's holdings transferred to his own name, I (and or Jane) should do it. If he wants the Trust to sell BG Fund 1 and buy BG Fund 2, I (and or Jane) should do that. Because ultimately he has the right to control and benefit from the assets.

But if Big James chooses to have us keep the assets in the Trust, we can do that with him giving us instructions when he can be bothered over the next decade or more. Adults can be beneficiaries of bare trusts.

If John and Jane will not carry out the beneficiary's instructions, he can take them to court and presuming he is of sound mind the court would order the trustees to act on his wishes in matters of the trust and its assets or perhaps make an order to dissolve it.

However, BG cannot simply decide, hey the beneficiary is old enough to exercise control, I'll just ignore legal ownership and go straight to beneficial ownership and just do what he says. The title is still with the trustees and they can and should sign off transfer or transactional documentation while they have title.
BG have to respect the legal paperwork and presumably just do what the trustee says.

As per your links:

beneficiaries can demand that the trustees transfer the trust fund to them.
...
the trustees' duty will be to transfer the property to the beneficiary or elsewhere at his direction
...
The beneficiary of a bare trust has an absolute right to access and control

This is all true. The beneficiary can demand something and the trustee should follow it. The trustees have a duty to transfer if the beneficiary wants. The beneficiary has a right to ask for access and you can't turn it down. If you don't, he can take you to court and win.

None of those quotes say that any financial service provider needs to take advice or direction or carry out any transaction for someone who is not their direct customer and is not their shareholder. If the trustee or a court requests the transaction, they should follow it. They will carry out actions permitted by the trustee. If the trustee does not permit something he should, like a sale or purchase or transfer to the non-minor child's own name, the trustee can get in trouble.

But there's nothing controversial whatsoever about BG themselves not doing anything that has not been instructed by the trustee. Because the trustee is the customer and the holder of legal title to the assets unless proven otherwise.

Long story short: fuss over nothing.

xylophone

Adults can be beneficiaries of bare trusts.

That is certainly true - and an adult has the responsibility for his tax affairs and to declare and pay tax on income received.

http://www.hmrc.gov.uk/trusts/types/bare.htm

While it may be true that a Trustee can pay tax on behalf of a beneficiary, he would need to have full knowledge of the adult's tax affairs to know whether or not this was necessary.

And "the trustee has no discretion over what income or capital to pass on to the beneficiary or beneficiaries."

It would seem to me that if BG were advised by an adult beneficiary that he was not receiving income and capital legally due to him, BG might at the least have to put the assets into dispute?

I perfectly understand the concept of legal ownership and beneficial ownership.

Certainly the relationship is between BG and the trustees but can/should BG facilitate a Trustee's refusing to act as he is legally required?

For this reason, I cannot agree that I am making a "fuss over nothing".

It seems to me that he matter is worthy of discussion and comment but of course you are at liberty to disagree!

suebfg

Tricky one ... my children have approx £10k currently in mix of investments and savings so should grow by time they reach 18. However, I intend to provide additional support in terms of house deposits/university fees etc but I want those monies in my name!

xylophone

However, I intend to provide additional support in terms of house deposits/university fees etc but I want those monies in my name!

Which is absolutely fine!

If IHT would be a consideration see http://www.hmrc.gov.uk/inheritancetax/pass-money-property/exempt-gifts.htm

You will note the information concerning maintenance payments to those in full time education.

bowlhead99

xylophone wrote: »

Certainly the relationship is between BG and the trustees but can/should BG facilitate a Trustee's refusing to act as he is legally required?

For this reason, I cannot agree that I am making a "fuss over nothing".

It seems to me that he matter is worthy of discussion and comment but of course you are at liberty to disagree!

It is not for BG to try to be enforcers of the law or the upholders of the wishes of a beneficiary. They are not engaged by a beneficiary.

The operation of any trust in line with the wishes of the beneficiary or settlor or protector or other agent of the trust depending on the nature and type of trust, and the lines of communication between the involved parties that make up the trust relationship (e.g. simply the beneficiary and the trustee in the case of a bare trust) is a private matter between the parties involved in the trust deed (e.g. simply the beneficiary and the trustee in the case of a bare trust).

BG are perfectly entitled to carry out their contracts and fulfil the duties agreed with the parties by whom they are engaged (the trustees). The fact that the trustees may be breaching their own fiduciary duties if the trustees act incorrectly is a matter for the trustee and beneficiary to resolve.

If BG are told by a trustee to do something or not to do something and the trustee is the accountholder/shareholder, they need to respect their instructions unless they have a damn good reason to take matters into their own hands because they know it is ultra vires. Like a court telling them it is, and I would hope no lower standard of proof.

The beneficiary has no capacity to instruct them. He does not have an account with them, he does not have a relationship with them, he is not on their share register, they do not have his specimen signature or current identification. If he goes to them and asks for shares in some trust account to be transferred to him, claiming he is the owner, they can and should tell him to go jump. A personal dispute is not their concern. If they can dissolve trusts at their own will and discretion, or cease providing services (putting gains, costs and tax consequences at risk) on a whim without formal instruction from the registered accountholder or the police, they would not have the trust of the investment community, solicitors or accountants etc.

- Reaper commented among other things that his child had a CTF/JISA that the child would get at 18. This is automatic with no action need by the parent because it is already in the child's name and the bank or service provider will contact the child for instructions upon reaching the magic age; the parent/guardian no longer has any role.

-Reaper also said the child's attitude to, or use of, the CTF/ISA assets would drive when the child gets the Trust money, because "controversially" BG will only release it to the child when the trustee says so. Reading between the lines, the implication being that Reaper and his/her co-trustee may 'accidentally' not inform the child of the existence of the trust funds, or not explain to the child that it is their right to demand the trust funds, on the stroke of turning 18, and BG would not step in spoil their fun.

Reaper may think that based off what he's read (about kids having absolute rights to their bare trust assets on reaching 18), BG's behaviour in this regard (i.e. continuing to follow the trustee's instructions) is somehow controversial. It is not controversial, it is how trusts work. A trustee engages service providers and arranges for trust assets such as shares to be registered in the name of the trust and controlled by a trustee. The service providers and registrars of companies or investment trusts or funds will engage with and take instructions from the trustee who established the relationships. Not settlors or beneficiaries or other hangers-on.

Unlike the bank with a JISA who have the assets in the name of the child, with a parent as signatory whose power automatically dissolves away when the bank contacts the child at age 18... a bare trust does not dissolve at age 18 and the bank or service provider does not have to go and hunt down a beneficiary and ask them what they would like to do in relation to their trust arrangements. The trustee has the responsibility of maintaining the trust arrangements and closing it down if necessary or continuing to transact if necessary.

A child can enforce the dissolution of a trust at 18 by asking the trustees nicely or nastily or by going to court if the trustee doesn't play ball. But a third party service provider cannot dissolve the trust and its staff are not authorised to take instructions from someone who is not a trustee.

To me, there is not anything complex or underhand or immoral going on here on behalf of BG. They have said they will continue to take instructions from the trustee until the trustee tells them otherwise and will not suddenly cut through the trust relationship on someone else's say-so. Perfect, that's how trusts should work. You mentioned you understood the concept of legal ownership vs beneficial ownership. The trustees legally own the assets and operate the trust on behalf of the beneficiary and it is down to them to operate it properly. Unless BG are a co-trustee they do not own the assets and therefore cannot distribute them out of the trust to anyone else.

There is nothing in any of the clippings that conflict with my comments.To be honest, I didn't see that there was anything worthy of 'discussion', I just thought it might be useful to explain what a trust was in case you or Reaper were not clear how they worked - Reaper thinking BG were being 'controversial' by taking trustees' instructions and you agreeing.

Perhaps you were misled by BG's comment in their Guide where they said that trustees relinquish control when child turns 18. That is correct, trustees cease to have control because they are supposed to listen to and respect the child's absolute right to control it. They should not keep it invested in some wacky scheme that the child does not want. However, that doesn't mean the trust arrangement goes away. The child merely gives instructions for the trustee to carry out and the trustee gives the child the necessary financial or tax information for the child to use in driving decisions and run his affairs. The child does not handle the assets while they are in trust, until they are taken out of trust.

The child may not even be aware the trust exists, although he does have a right to, and a need for, the information for tax and personal planning purposes so you could say his parents were being immoral by not telling him about it and filing his taxes on his behalf... and maybe the grandparents as original donors would not approve of their actions. Or maybe they would complicitly perpetuate the subterfuge until the child is older. Ultimately if they had not been so generous the child would have nothing or would have received the money later, net of more income tax or inheritance tax bills, if at all. So, many here would not have much of an ethical dilemma about not telling the child.

In my view, in a harmonious familial relationship, the trustee is not 'refusing to act as he is legally required' until the child tells the trustee how to act and the trustee disobeys. It is not for BG to make such judgements. A court might make those judgements if the money was significant and the child really wanted to go there and damage the family relationship by disrespecting his parents/grandparents wishes, by going so far as to get a court order to exercise his rights to dissolve the trust and grab the cash.

Reaper

We are going a bit off topic but it is an interesting diversion. The reason I said "controversially" is that on the application form BG actually ask what age your would like to terminate it (though non-binding) and accept any age beyond 16/18. So they actually formalise a legally dubious plan to deny the child the money they are entitled to at 16/18. I wrote down 21.

As you say Bowlhead no provider will release the funds until the trustees say so. If the child wants to enforce their right to the money they would have to take both parents (as trustees) to court. Frankly I would fold if I got a court summons and hope if he was switched on enough to discover and act on his rights he was also responsible enough to spend it wisely. I would also hope our relationship never breaks down so much that it would ever come to that.

You can't plan for every eventuality but I feel comfortable with my strategy.

bowlhead99

Reaper wrote: »

We are going a bit off topic but it is an interesting diversion. The reason I said "controversially" is that on the application form BG actually ask what age your would like to terminate it (though non-binding) and accept any age beyond 16/18. So they actually formalise a legally dubious plan to deny the child the money they are entitled to at 16/18. I wrote down 21.

I see why you might think that BG were being legally dubious if they were doing something that appears to deny beneficiaries their rights. However, they are not doing that.

In the application documents you are establishing a trust. That trust can have a fixed life expiring on the occasion of the child's 18th birthday or 19th or 30th or 75th, for all they care. They are just putting an end date on the trust and say it will expire - and distribute residual assets to the beneficiary - if nobody takes action to extend it, when child is 18 or 30 or 75 or whatever you pick.

Plenty of adults are beneficiaries of bare trusts; it is perfectly reasonable for you to continue to, as trustee, be the legal owner of the assets but be taking instructions from your 18 or 25 or 50 year old son every week, month or year in relation to his affairs. At some point you will go, "come on son, I shouldn't have to keep doing this admin for you while you yourself are in your thirties and long back from your student gap years and busy work assignments, let's dissolve the trust and have you run the assets yourself."

Which would be fine. In helping you create a trust that won't wind down automatically until the child is 21 or 25 or 35, they are not suggesting that once the child is 18 you should deny him access or control. They would presume you're going to keep your legal obligations to comply with the beneficiary's wishes from when he turns 18 up to some later point when you wind up the trust. So an end date in his twenties is fine.

But they will not wind up the trust automatically or distribute assets out of it on someone else's instructions, before the end date, unless you, as trustee, tell them to.

Hope that makes sense - sounds like you have it covered.

Reaper

Yes I guess that is their thinking. I think we are pretty much in agreement on this one.

xylophone

No one is denying that adults can be the beneficiaries of a bare trust!

The point is that once the beneficiary has reached the appropriate age, he has the absolute right to access and control and the Trustees are legally bound to act on his instructions!

http://www.lawdonut.co.uk/law/personal-law/trusts-for-children-and-other-family-members-faqs
"However, the trustees must inform the child of the trust’s existence once the child reaches the age of 18."

They are just putting an end date on the trust and say it will expire - and distribute residual assets to the beneficiary - if nobody takes action to extend it, when child is 18 or 30 or 75 or whatever you pick.

Are you saying that BG will do this regardless of the wishes of the Trustees?

I am still far from happy about the way that BG are presenting this arrangement.

If parents or relatives are uncomfortable about the legal implications of setting up a bare trust then they simply should not do it - they should either go the whole hog and establish a discretionary trust or keep the assets themselves and distribute as appropriate?

In the case where there is no option but to establish a bare trust ( for example where a minor has an absolute entitlement under a will but cannot take immediate possession because he cannot give good receipt), then the Trustees have to accept that the child has an absolute entitlement at the age of majority.

bowlhead99

xylophone wrote: »

No one is denying that adults can be the beneficiaries of a bare trust!

. Perhaps not, but I have stated this in two separate posts in order to make the point that a trust can certainly continue in existence after the child becomes an adult and it is perfectly normal and above board for BG to state that they will not go and dissolve a trust at age 18 just because someone who is not a trustee tells them to. Their duty to the Trust as their investor is to the Trustees and if a beneficiary of any trust, bare or otherwise, wants to do something with the assets, that beneficiary should speak to the Trustees and not to BG.

The point is that once the beneficiary has reached the appropriate age, he has the absolute right to access and control and the Trustees are legally bound to act on his instructions!

. The Trustees are indeed legally bound to follow the wishes of the ex-child, just as the registrar of an investment trust is legally bound to follow the instructions of the Trustees of the Trust who hold the investment legally.

BG are not suggesting that the Trustees should disregard the wishes or instructions of the adult beneficiary. So we don't need to highlight "trustees must follow the instructions!!!!" We know they should, and BG don't say they shouldn't.

"However, the trustees must inform the child of the trust’s existence once the child reaches the age of 18."

This is true, they must.

BG do not have to ask whether they have fulfilled that duty because they aren't police officers or a courts system and it is not up to them to follow the Trustees around shadowing what they are doing.

[Re: being able to put an end date on the trust when there will be a terminal distribution]
Are you saying they will do this regardless of the wishes of the Trustees?

No. Anecdotally (i.e. from Reaper), he was asked for an end date.

EITHER that is because it will form part of the trust deed (and thereby it will not be "regardless of the wishes of the Trustees", it will be with their explicit knowledge and consent when they sign up to establish the trust).

OR the date is for planning purposes and BG are just curious how long the Trustees envisage having the trust arrangement in place, as part of their customer onboarding program. There is no subterfuge here on the part of BG.

I'm far from happy about the way that BG are presenting this arrangement.

You are making a mountain out of a molehill. BG have an investing for children guide where they outline the basic diffs between bare trust and designation and when you might like to use them. On their application form they have more information and the actual text of the trust deed from which the trustees derive their powers. There is a date specified(which can be 18th birthday or any later date) and the trustees have to declare they will hold the assets of the trust fund for the absolute benefit of child until that date.

The child if old enough can come to the Trustees and ask to get it before that date -and trustee is supposed to comply with that request because the law says they should. We know from Baillie's site and others that the child is in charge and can control it from the age of majority. In practice this is achieved by the child directing the trustees who must comply. The child does not have a relationship themselves with the plan manager.

If parents or relatives are uncomfortable about the legal implications of setting up a bare trust then they simply should not do it - they should either go the whole hog and establish a discretionary trust or keep the assets themselves and distribute as appropriate?.

I agree, but if they instead create a bare trust and forget to tell the child until later, breaking their duties, they may achieve the same result as a more expensive trust, in terms of the child not accessing it without a headache. BG certainly wouldn't advocate someone doing that, absolutely nowhere in their documentation is that implied. And neither would a solicitor (BG advise you to take legal and or tax advice if you need to understand the position).