What to do with discretionary trust?

Trustnovice

My late father's will set up a nil rate band discretionary trust with my mum, sister and I as both trustees and beneficiaries. Standard stuff, £325k in it. No letter of wishes. The rest of his assets went direct to our mum. Mum is very frail with dementia, and in a care home with fees fully paid. We have PoA for her finances and health. In addition to the NRB trust, she has a considerable pot of her own investments which we manage on her behalf. We are doing all we can to ensure she benefits from her assets (most luxurious room we can find, all mod cons, all treats, trips etc we can think of ) but she doesn't stand a hope of making any significant inroads into her funds. A solicitor has advised that the trust needs to be used for her benefit only at this point, which is impossible.

My sister and I need to keep things simple. We don't want to have to manage a further £325k in the trust, as well as mum's investments. Is there any reason my sister and I (as trustees and beneficiaries) cannot distribute the NRB trust assets between us and close down the trust? It's inconceivable that mum will ever need to draw on the NRB funds but of course her needs willl always come first. We just don't want the hassle of managing yet more investments that we know mum will never be able to benefit from in her lifetime. But we don't want to do anything legally or morally wrong..

Any advice very welcome

Keep_pedalling

Can't help as far as the trust is concerned, but do your mother's funds actually need managing at this stage of her life? She does not need any growth so why not switch it to cash for simplicity and safety?

kidmugsy

Trustnovice wrote: »

A solicitor has advised that the trust needs to be used for her benefit only at this point, which is impossible.

I don't see his point; the money in the trust is to be used at the trustees' discretion.

What should concern you, I suggest as an amateur, is how to run the trust when one of the three trustees is gaga. I think you need to consult a solicitor with suitable expertise.

qwakuk_2

I do this for a living. Find a good local accountant who is conversant in specialist tax work. Nothing to stop the trustees "breaking" a trust, but there are usually tax consequences.

We are based in London / Essex borders, not sure where you are.

silvermum

"A solicitor has advised that the trust needs to be used for her benefit only at this point"

I think you have your answer here!

And
"Is there any reason my sister and I (as trustees and beneficiaries) cannot distribute the NRB trust assets between us and close down the trust?"
because it would be hard to argue that this is in any way in her best interests...

I can see why this might seem like a good solution for you, but when trustees are also beneficiaries they need to be very careful!

xylophone

http://www.whatinvestment.co.uk/discretionary-trusts-can-used-inheritance-tax-planning-2553731/

If this is a discretionary trust, why must it be used primarily for your mother's benefit?

But aside from that, your mother is incapable of carrying out her duties as a Trustee.

https://www.furleypage.co.uk/what-to-do-when-a-trustee-loses-mental-capacity-to-carry-out-trustee-functions/

Trustnovice

Thanks all. Yes, tempting to put it all in a bank account and leave it, but solicitor said we'd be neglecting our duty to look after mum's assets as PoA as they would lose value. Good point about removing her as trustee, hadn't thought that would be necessary given PoA but it might make things simpler.

And it's the conflict of interests as trustees and beneficiaries which is causing all the problems here. Common sense (and what my dad would have wanted) dictates we just share the trust and close it, but totally get how that looks!

Keep_pedalling

Trustnovice wrote: »

Thanks all. Yes, tempting to put it all in a bank account and leave it, but solicitor said we'd be neglecting our duty to look after mum's assets as PoA as they would lose value. Good point about removing her as trustee, hadn't thought that would be necessary given PoA but it might make things simpler.

And it's the conflict of interests as trustees and beneficiaries which is causing all the problems here. Common sense (and what my dad would have wanted) dictates we just share the trust and close it, but totally get how that looks!

I think I would be looking for advice elsewhere. Yes cash deposits will lose value, but equities could slump tomorrow loosing a hell of a lot more, and would be unlikely to recover in your mother's lifetime.

Malthusian

Keep_pedalling wrote: »

I think I would be looking for advice elsewhere. Yes cash deposits will lose value, but equities could slump tomorrow loosing a hell of a lot more, and would be unlikely to recover in your mother's lifetime.

Which from the sound of it may still have no impact on her as she has comfortably enough money to meet her care fees. Keeping several years' worth of care fees in cash may be a sensible precaution against market movements and pound cost ravaging. Sticking the whole lot under the mattress isn't.

The average stay in a care home is 2 years but there is a long tail - people with dementia, even ones described as "frail", can and do live for many years. Nothing suggests the advice from the solicitor (who knows more than we do about the mother's assets) is not sound.

The OP hasn't answered xylophone's question - if this is a discretionary trust, what's stopping the trustees from distributing the whole lot to the OP and sister?

What it looks like is that they are distributing capital to the beneficiaries who need it. And how it looks doesn't really matter, because they have discretion. Unless there is something the OP has not told us about how the trustees have been directed by the father's Will.

kidmugsy

When you see the solicitor about dealing with a trustee who is mentally incompetent, you should probably also ask about the advantages and disadvantages of, after the death of your mother, (i) distributing the money in the trust and winding it up, versus (ii) lending the money to the two surviving beneficiaries and keeping the trust in existence.

Trustnovice

Thanks all, really useful advice here.

Clearly, sorting out mum's status as trustee is a crucial first step. I think we need to apply to the court of protection...any ideas how long this would take? We already have plenty of recent medical reports with diagnosis of dementia, confusion etc. We have bought her a care home fees annuity to cover care home costs for life (rises with inflation) so together with her investments and savings, it is effectively impossible to imagine a scenario where she could even make inroads into her capital.

My father's will directs the trustees as follows: "I give the NRB legacy to the trustees to hold upon the following trusts. The trustees shall have power to appoint the whole or any part of the capital and/or income of the NRBLegacy Fund upon trust for or for the benefit of such of the Discretionary Beneficiaries at such ages or times, in such share, upon such trusts and in such manner generally as the Trustees shall in their discretion think fit"....(few clauses about appointments) "subject as above, the Trustees shall hold the capital and income of the NRB Legacy Fund upon trust for such of my daughters (names my sister and me) as are living at my death and if both in equal shares between them, provided that if either die before me etc....(we haven't).

Mum is then listed under Absolute residuary gifts: "Subject to the trusts declared above, my executors shall hold my estate 1) for my said wife (named) 2) subject as above for such of my said daughters as are living at my death...etc

Then the final para says: "The Discretionary Benficiaries" shall mean: 1) my wife 2) my children and remoter issue 3) the spouses widowers etc of my children and remoter issues 4) charities"

(He had no other children or step children etc. And just to be clear the will starts: "I appoint my wife (name) and my daughters (names) to be the executors and Trustees of my will.)

Does this help to clarify whether we can just put dad's assets into the trust (once mum is no longer a trustee), then split it between us and "break" the trust?