Talk me through a Discretionary Trust

shinypenny

I have a Life Insurance policy which will pay out £115k (rises with inflation) if I die before I'm 60. I'm 42.

I've been doing some financial planning and I don't think it's held in Trust.

My Estate is currently worth maybe £200k in property plus £20k in shares/investments and an £80k Death in Service payment so for Inheritance Tax planning I'm borderline on the £325k IHT threshold. I've done some reading and if I put it into Trust (not sure why I didn't when I took it out in 2014) and then die within 7 years it counts for IHT anyway.

I've been looking at putting it in a Discretionary Trust. I ideally want a % to be held for my daughter (currently aged 5) until she comes of age and a monthly income to be paid to my partner (we live in Scotland, are not married) to assist with childcare expenses etc. I expect my Death in Service grant to pay off the mortgage, give or take.

Is this possible or just a complete nightmare for the Trustees to administer?

Can someone take me through step by step what is involved, what happens when I die in terms of who gets the money and the potential tax implications.

Is it easier to give it all to my othrr half and trust him to deal with it responsibly?

I have a fear that if he suddenly inherits £200k he'll not keep any back for our daughter's University expenses etc.

Weighty1

It would not count towards IHT if you died within 7-years as it's not a Potentially Exempt Transfer. It's not a nightmare but to ensure your trustees know how to use the proceeds from the claim write them a "letter of wishes" to explain your intentions for the money.

I normally recommend using a partner/spouse as one trustee and then another family member as a second trustee. Someone who you know would have your families best interests at heart and would prevent the money being mis-managed if necessary.

Keep_pedalling

Getting married would be a sensible thing to do as far as IHT planning is concerned.

Old_Lifer

Forgive me if I have misunderstood you but are you regarding the £80,000 Death-in-Service lump sum as part of your Estate?



I assume the Death-in-Service benefit under the Pension Scheme (effectively a single premium term assurance but renewed each year using members' current ages and paid for by the Employer) would be paid in accordance with the Definitive Trust Deed governing the Scheme. This will list the categories of person eligible to receive payment under the Scheme. The final category often found in my day was 'any other person who in the opinion of the Trustees.....'



In the vast majority of cases I would expect the Trustees to follow the member's wishes but some people have complicated lives and if a former partner or child from an earlier relationship comes along in dire circumstances the Trustees may chose to help them.