Investing a Flexible Life Interest Trust

Kayster

I am trustee for my mothers Flexible Life Interest Trust trust left by my father. My mother is in her late 90's and has dementia. I have an EPA for her. It is unlikely she will ever need the money in the fund and it has been sitting in a poor interest bearing account.
I am thinking I would like to invest it in the hope of achieving a better return in the knowledge that if it did lose some value the only person who would ultimately suffer is me as the money will pass to me eventually.
I am reasonably confident investor DIY having run a SIPP ISA and trading account with II for a several years.
Any advice on how to go about this?

dunstonh

I am thinking I would like to invest it in the hope of achieving a better return in the knowledge that if it did lose some value the only person who would ultimately suffer is me as the money will pass to me eventually.

This is key as late 90s is a wholly inappropriate age to start investing. However, if the beneficiary is going to retain the investments then its not a problem.

Any advice on how to go about this?

most discretionary trusts run with an onshore or offshore investment bond for tax reasons. Some will allow a general investment account under the trust. Which tax wrapper works best for you? Is there a choice with II?

Kayster

I have reread the Trust documents and although it talks of a Discretionary FUND it is actually a Flexible Life Interest Trust fund not a Discretionary fund. Sorry for the mis information.

sleepisfortheweak

There are a couple of things that spring to mind on this.

- Are you the only beneficiary of your mother's estate, and the only capital beneficiary of the trust after your mother dies? If there is anyone else (siblings, etc) you need to tread very carefully.

- As your mother has a life interest in this trust, for inheritance tax purposes it is as if she owns the underlying capital of the trust fund. This means that on her death, the capital value of the trust will be added to your mother's personal estate and subject to IHT in the usual way. This tax is in theory payable out of the trust fund, so investments may need to be sold when your mother dies to pay the tax if there is insufficient cash. It may not be a good time to sell, markets wise.

- As this is a life interest trust, there is no need to deal with bonds (either offshore or onshore). Bond wrappers are used in discretionary trusts to eliminate tax reporting. In this case, the income could be mandated to your mother and simply reported in her tax return (unless the trust realises taxable capital gains). There may be no need for the trust to submit a tax return.

- You would need to set up a trust investment account to hold the funds, as you know it can't be in your name. I don't know which firms offer this on a diy basis, the ones I have dealt with have been through IFAs / investment managers.

Kayster

sleepisfortheweak wrote: »

There are a couple of things that spring to mind on this.

- Are you the only beneficiary of your mother's estate, and the only capital beneficiary of the trust after your mother dies?.

Yes on my mothers death I am sole beneficiary.

sleepisfortheweak wrote: »

- You would need to set up a trust investment account to hold the funds, as you know it can't be in your name. I don't know which firms offer this on a diy basis, the ones I have dealt with have been through IFAs / investment managers.

I have a bank account and an interest bearing bond in the trust name and the bond is about to mature - hence me looking at alternatives. I struggled to set up the maturing interest bearing bond in name of trust and had to use an IFA for that back then.
Unless someone knows differently it looks like this is not possible to do DIY and I am back to finding an IFA.

sleepisfortheweak

If you use an IFA make sure whoever you choose is familiar with life interest trusts, and with concepts such as mandating income to your mother and the need for reports showing income and capital separately. The IFA shouldn't be suggesting any type of bond wrapper. You can negotiate IFA fees; both upfront and ongoing.

The alternative is to go directly to an investment manager if the values are high enough (from memory c£250k upwards). Some investment firms with a good understanding of trusts are Rathbones, Brewin Dolphin, Investec, Cannacord; there are others. Some firms would take a lower amount but not manage it on a bespoke basis to you, instead as part of a collective pool with the same risk profile.

You would wish to compare fees in both options.