Discretionary Trust - Need a Solicitor?

MysteryMan

I am dealing with my father's will and it stipulates that his assets (money, investments and half of property) should be put into a "Discretionary Trust" with his wife and 2 children (myself and my sister) as trustees and beneficiaries. 

My questions are:

• Is the Trust a physical, legal document?
• Does it need a solicitor to set one up?
• If so, any idea of costs?

Thanks

xylophone

The will itself has specified that a Trust should be created.

This means that accounts need to be opened in the names of eg A. Jones/B. Smith/A Thompson as Trustees of the J. Jones Will Trust.

 You would need a  Trust current account with a bank - you might find that some banks will not open such an account but you could try Barclays or Metro Bank, and then either savings/deposit/investment accounts.

As Trustees, you will need to be aware of the tax rules relating to Discretionary Trusts.

https://www.gov.uk/trusts-taxes/trusts-and-income-tax

You may prefer to take professional advice from a solicitor expert in Wills and Trusts and/or a chartered accountant with expertise in wills and trusts.

https://content.step.org/step-directory

You can google- example

https://www.mercerhole.co.uk/services/private-client/uk-trusts/

Keep_pedalling

Do you know why he chose to do this? It is likely to be a very poor option considering the taxation of discretionary trusts is very high. 

I agree that you should seek professional advice. If a DT is not the best option for his widow and yourselves it should be possible to alter the terms of the will through a deed of variation. If his will was made before Oct 2007 then It is likely that it was done to protect his NRB, which was made transferable to a spouse from that date making many wills obsolete in the process.

lr1277

My parents had a similar setup with a will written in 2005. From my point of view as the executor, it would have been painful. And as has been pointed out, the nil-rate residence band rules have changed. The following is my analysis of what I would have had to do and is based on reading the internet and not professional advice.

My parents had already changed the ownership of their house to tenants in common from a joint tenancy.

The will would have meant creating a Trust:

Finding banks/building societies to hold the accounts for a Trust.

Finding a stockbroker to hold the shares in a Trust account. As the trust would own the shares, I suspect they would have to be sold from their current stockbroker account (triggering a CGT bill) and then put into the trust share account.

A trust can't hold an ISA. So the shares in the ISA would have to be sold and put into a stockbroker trust account.

My parents are landlords, so their share of the tenanted property would have to be put into the Trust. Any rental income would have gone to the trust. Also the tenanted property would have to be changed from joint tenants to tenants in common.

I would have had to submit a yearly tax return for the trust for any share disposals, dividend income and rental income.

My solution was to persuade my parents to re-write their wills to give everything to each other. Other than making life easier for me, it means the nil-rate residence band could be used and no IHT to pay on the first death. At the same time as re-writing the wills, my parents changed the ownership of their main residence back to joint tenants.

If I hadn't persuaded my parents to re-write their wills, after the death of the first parent, I would have made the argument to the remaining parent and my brother (all of us are beneficiaries and the remaining parent and I were executors) to enact a Deed of Variation so that everything went to the remaining parent.

In terms of costs, the solicitor we used had the following charges:

£400 (+VAT) for 2 simple mirror wills

£250 (+VAT) to change the house ownership back to joint tenants.

They also listed the following costs:

Preparing a post-death DOV £500 (+VAT)

Preparation of a Declaration of Trust: From £350 (+VAT). I don't know how this compares to setting up a discretionary trust

Creation of a lifetime trust: Quote given on application. Again I don't know how this compares to a discretionary trust.

HTH

MysteryMan

Thanks for replies.

Yes, I understand that the advantages of using a trust for inheritance tax purposes have now disappeared, due to the unused allowance being transferable to survivor.

However, the other purpose of using one was to protect the deceased's share of estate being swallowed up by care home fees if the surviving spouse had to go into a care home. This, I believe, is still a valid reason to use one.

From what people have said then I am going to have to bite the bullet and get a solicitor involved!

Keep_pedalling

MysteryMan said:

Thanks for replies.

Yes, I understand that the advantages of using a trust for inheritance tax purposes have now disappeared, due to the unused allowance being transferable to survivor.

However, the other purpose of using one was to protect the deceased's share of estate being swallowed up by care home fees if the surviving spouse had to go into a care home. This, I believe, is still a valid reason to use one.

From what people have said then I am going to have to bite the bullet and get a solicitor involved!

Yes but there are better and more tax effective ways of doing that than a discretionary trust. Your fathers share of the house would be better left to his children with your mother being granted a life interest in the property. This secures her home and prevents your father’s share being used for care costs. 

The rest of his estate I would let your mother have, to make the latter years of her life as comfortable as possible even if that means spending a chunk of that on care costs. No one wants to go into care but if you have to then you want the best available. Having substantial assets for instance could enable you to to stay in you home with a live in career rather than go into residential care.

There is also the issue of IHT. If his assets exceed £325k then anything above that is subject to IHT which it would not be if you do what I suggest above. Putting his share of the house into a DT also looses his residential NRB, which would otherwise be transferable to your mother’s estate.

xylophone

It would appear that your mother and her children are the only named beneficiaries of the Trust that the will would create.

If you are all in agreement that you wish to vary the will, you can consult a solicitor expert in wills and trusts with a view to setting up an Immediate Post Death Interest in possession Trust which would permit your mother to occupy the property (or a replacement) for her lifetime while making her children the ultimate beneficiaries.

https://techzone.adviserzone.com/anon/public/iht-est-plan/Tech-guide-iht-on-death

Is very technical but worth a careful read before your appointment with the solicitor.