Guide to investing as a trustee

apb1

I'm one of three trustees for a trust set up in my mum's will to provide an amount for each of my children (called 'the grandchildren's trust), which they can have when they are 26 (they are 17, 20 and 24). I am planning to invest the amounts in NS&I Income Bonds as they seem suitable for this type of investment, but the rates are not so good (the kids would be better off with Cash ISAs or S&S ISA for the youngest.

Before I hand over the dosh, I'm interested to know if there's a website where investments suitable for this kind of situation are compared. I'm not after massive income, just something slightly more than 1.1%!

Supplementary question. My mum and I discussed using this money to fund Lifetime ISAs to build up a property deposit. Frustratingly, we can't now do so until the trust for each child matures (wasting time). If I lent them the money (4k per year) to invest in LISAs till their trust money comes through would it be best to do a legal document to say they would pay it back? If so, would a simple document signed by me and them, and witnessed be ok? Or have I got to get solicitors involved?

Thanks in advance for any help you can provide..

apb1

xylophone

See

https://www.gov.uk/hmrc-internal-manuals/trusts-settlements-and-estates-manual/tsem1563

Have the bequests "indefeasibly vested" in the grandchildren?

This is very important with regard to tax treatment so refer to the solicitor.

xylophone

See also

http://www.prescient-financial.com/docs/Bare%20trust%20returns.pdf

Robin9

There are several threads on this subject - although the will may say 26 in practise anyone over 18 can claim their inheritance so your trusts would be a waste of time

xylophone

although the will may say 26 in practise anyone over 18 can claim their inheritance so your trusts would be a waste of time

This is not the case - the situation depends on the type of trust involved.

It is important to determine the type of trust for tax purposes - see links in previous.

http://www.greene-greene.com/Downloads/trustees-booklet.pdf

apb1

xylophone wrote: »

See

https://www.gov.uk/hmrc-internal-manuals/trusts-settlements-and-estates-manual/tsem1563

Have the bequests "indefeasibly vested" in the grandchildren?

This is very important with regard to tax treatment so refer to the solicitor.

Thanks very much, and will do. V. annoying to need to though! Why doesn't the will just specify this? I don't want to start paying by the minute to find out something that could just be made clear by the solicitor in the will or covering letters. Grr...

Malthusian

If you can post the relevant part of the Will here verbatim, we may be able to tell.

If the Will specifically "provides an amount for each of them" (as opposed to the Trustees having discretion on who gets how much and when), then the two adults may already be entitled to ask you to hand over their share.

If that is the case, I see little reason not to simply pass the money to them so they can open Lifetime ISAs or whatever else they want to do with it. There is little reason for you to manage their financial affairs for them.

apb1

Here's the phrasing:

The phrasing is “I give free of tax to each of my grandchildren X ('X'), Y ("Y") and Z (“Z”) who is alive at my death the sum of £xxxx (hereinafter called “the Grandchildren’s Trust Fund”) provided that if any of the persons named in this clause is under 26 at my death the sum given to that person shall not vest in him or her absolutely but be held by my trustees on trust to invest it in exercise of the powers of investment given them by this will and to hold it and the property which currently represents it on trust for that person contingently on reaching that age.”

jaybeetoo

Call me cynical but I sometimes think solicitors draw up wills to give them money when they could take the simplest and cheapest solution that doesn't involve them.

bowlhead99

apb1 wrote: »

Here's the phrasing:

The phrasing is “I give free of tax to each of my grandchildren X ('X'), Y ("Y") and Z (“Z”) who is alive at my death the sum of £xxxx (hereinafter called “the Grandchildren’s Trust Fund”) provided that if any of the persons named in this clause is under 26 at my death the sum given to that person shall not vest in him or her absolutely but be held by my trustees on trust to invest it in exercise of the powers of investment given them by this will and to hold it and the property which currently represents it on trust for that person contingently on reaching that age.”

With that wording, unfortunately you can't just give it to them now.

It would be different if it had simply said that the amount of X, or certain trust property, has been allocated to each grandchild and should not be given to them until they respectively attain the age of 26. In that situation, it is definitely their money and you are just deferring the payment date; if at the payment date the grandchild is dead, you would give it to their respective estate, and (e.g.) their surviving wife or child might get it. Where it's 'definitely their money' with a deferred payment timeline, HMRC would say it has 'indefeasibly vested' in the grandchild and is just a bare trust, so there's no issue in the trustee giving it to the grandchild where the grandchild is over 18.

Unfortunately in this case you can't just hand the money over, because the money quite specifically does NOT vest in each of them absolutely. The will says it is instead contingent on them reaching the age of 26. Reaching that age is a condition that each grandchild must meet, before they qualify to have it. So, you can't give it to them until they meet that condition, because they do not qualify to have it if they don't ever get to that age. Until then, you don't know it's definitely going to belong to them, as they might drop dead at 25 years 364 days old and fail to meet the condition, so you can't take the money out of trust and give it to them now.

bowlhead99

If I lent them the money (4k per year) to invest in LISAs till their trust money comes through would it be best to do a legal document to say they would pay it back? If so, would a simple document signed by me and them, and witnessed be ok? Or have I got to get solicitors involved

No solicitor needed. If your child is 18+, they are able to sign a simple agreement with you, to say you will lend them X amount of money and they will pay you back at a certain point in time (e.g. in 2020 for the eldest, later for the youngest).

You could agree an interest rate (but then you will need to potentially pay tax on the interest that you earn from them, if it's more than your interest allowances in the year they pay it to you) or keep it simple and interest free. You could do a separate document each time you lend them money.

In the document, you may like to set the day it should be paid back as something like "the later of date A or the date that they receive their share of the trust proceeds". But you might prefer not to make reference to the trust proceeds at all. If they die age 25 and never qualify for the trust proceeds, then you would still presumably want to get your £4000s back, whereas whoever is administering your child's estate (e.g. a future husband or wife of your child, who may be inheriting all their assets less their debts) might say the payback was only contingent on the grandchild having got the trust proceeds, and there are no trust proceeds, so no debt payable, and you would wish you had taken legal advice.

Best to keep it simple: "We agree that I gave you £4000 on 31 May 2018 as an interest free loan and you agree to pay me back that money on or before 31 December 2020".