Completely confused, Discretionary Trust Fund Issues?

Fable1506

I'll try and keep it short!

I found out 4 years ago that my grandmother had set up a Will Trust  for me and 3 others ( i.e. all  four of her grandchildren ) some years previously.

On her death in 1991 her son ( my uncle ) administered the trust naming an aunt  ( his sister ) as a beneficiary...i.e. she receives the interest each Christmas from the trust.

On my uncle's death in 2018  2 of the trust beneficiaries ( my aunt's sisters ) took over the running of the trust.

The other beneficiary and myself are nieces of my aunt and cousins to the 2 trustees.

I was contacted 4-5 months ago by one of the trustees saying they wished to end the trust by splitting the trust fund ( approx. £74K ) 5 equal ways i.e. my aunt to receive 20% of the fund rather than draw interest each Christmas. I confirmed I was fine with that and as requested confirmed my full details so they could forward to the solicitor dealing with the matter.

Nothing happened, so I contacted one of the trustees last week asking for any progress and / or settlement date. The response was confusing...

They say that there is no settlement date as yet since they've been told that if they ended the fund and shared the monies....then we'd be liable to pay 40% tax if the aunt died within 7 years of settlement.  I don't want to go back to discuss the point unless I know something to confirm or otherwise with this information from them and my knowledge of trust funds and tax law is pretty much zero.

The aunt is in her late 70's, married. I'd guesstimate her home to be worth circa £170K, and I doubt they'll have much in the way of savings if anything. Not sure if that's relevant or if it is how it might affect any tax situation. I'm positive it won't have any effect.

Can anyone enlighten me on whether the info I've received is correct - everything has been done by FaceBook!! believe it or not since we're not a close family and don't meet up even though I suggested we should to resolve this matter.

As an aside, am I allowed/ entitled to see the Trust Deed? When I asked they said there was no need for me to see or have a copy and my other half could contact them if the need arose. I ask since I'm almost 70 and in the process of updating my will. The last thing I'd want my wife having to do if I passed away is having to contact virtual strangers by FaceBook.

It's perplexing and the lack of any contact and meaningful information from the 3 trustees is frustrating to say the least.

Malthusian

They say that there is no settlement date as yet since they've been told that if they ended the fund and shared the monies....then we'd be liable to pay 40% tax if the aunt died within 7 years of settlement.

Are they sure about that? This sounds like a life interest trust and although the value of a life interest trust is treated as part of the life tenant's estate, from what you've said she won't be subject to Inheritance Tax as her estate would be within the Nil Rate Band - even with the total trust fund added in.

(It could also be a discretionary trust - it's not entirely clear from the information given - but for those the tax treatment is completely different.)

In addition, if it was liable for IHT, her estate would pay, not the trust beneficiaries.

Would your wife even benefit if you died before the trust was wound up? Or would your share pass to the remaining beneficiaries? (The trustees should be able to answer that question.)

I wouldn't bother chasing up the trustees about the wind-up. The aunt could easily change her mind on her decision to take 20% of the capital rather than 100% of the income for life. Maybe she already has.

As an aside, am I allowed/ entitled to see the Trust Deed?

Allowed yes, entitled no.

I ask since I'm almost 70 and in the process of updating my will.

The trust monies will only be part of your estate if the trust is wound up in your lifetime. Or if your share of the eventual distribution forms part of your estate, but that might not be the case. Either way, if it's just under £15k, does whether you've received it or not make any difference to how you'd want to dispose of your assets?

Fable1506

Thank you, checking the letter I received from the trust management company it's a Discretionary Trust.

Hope that helps?

No, the amount won't make any difference as to how my assets would be distributed.

I don't particularly mind whether the aged aunt wants to wind up the trust or continue taking the interest, although it would be nice to know what she wants to do one way or t'other   :-:smiley:

Malthusian

Thank you, checking the letter I received from the trust management company it's a Discretionary Trust.

If so I think they may be confused about how Inheritance Tax works. Discretionary trusts are potentially subject to IHT on 10 year anniversaries and on exit. A discretionary trust does not have a "life tenant"; the payments to the aunt would be at the trustees' discretion. The trustees pay paying the trust's income to the aunt wouldn't make it part of her estate.

I am wondering if the actual reason for not winding up the trust is that the aunt has realised that exchanging 100% of the income for 20% of the capital is likely to be a rotten deal (if the trust produces say 3%pa income, she would run out of money in less than a decade if she drew the same income from her 20% share), and "something something Inheritance Tax" is a tactful way of avoiding any ill-feeling from the beneficaries towards the aunt (for thinking twice) or the trustees (for raising the hopes of the other beneficiaries that they could access their share before the aunt has died).

Note that I am groping in the dark somewhat due to the limited information and could easily have made some more wrong assumptions (like when I assumed this was a life interest trust).

The important bit is that you can go ahead with making a Will, and can forget about the trust money and treat it as a nice windfall if/when it does arrive.

It might be worth asking the trustees explicitly what happens if you predecease your aunt. If it's a discretionary trust they may have discretion over whether they pay "your" share to your wife or redistribute it among your siblings / cousins. (She may also not be eligible to benefit, depending on the trust deed.)

xylophone

I found out 4 years ago that my grandmother had set up a Will Trust  for me and 3 others ( i.e. all  four of her grandchildren ) some years previously.

One assumes that probate was granted.

https://www.gov.uk/search-will-probate

What exactly does the Will say concerning this Trust?

It may well be a Discretionary Trust but if the named (potential) beneficiaries were grandchildren,  how comes it that the Trustee (your uncle and late grandma's son presumably) was able to make payments of any description to his sister ( presumably late grandma's daughter)?

Fable1506

Thank you both. Sadly, the situation is that the 2 trustees will not divulge or share even basic information with me or to me.

The only written word I have is on the letter  from the Investment Management Company to all 4 beneficiaries saying:

" RE: Mrs. X  Deceased Will Trust "

Then it mentions that as my uncle was retiring as sole trustee we needed new trustee(s). To that extent they instructed we would need to draw up a Deed of Retirement and Deed of Apointment for the new trustee(s) and suggested a solicitor by name.

My aunt's two sisters took the position of trustees and that was the last I heard until the FaceBook messages came through. ( I did ask the elder trustee about receiving annual statements on the trust and its performance but deaf ears, I'm afraid.

Again, the money isn't life changing, but since I know nothing about the trust and how it works, I don't even know if I can name my wife as my beneficiary if I pre decease her and the aunt ( assuming she intends not to terminate the trust but continues to draw the interest each Christmas ) . I have no concerns over that, absolutely fine by me but I would like to know where my wife stands if I pass on.  She hardly knows them and vice versa and making contact via FaceBook isn't ideal!

Bobziz

I think Xylophone's point was that as it was a Will Trust, the information should be available for a small charge via the link that was provided i.e the Will is in effect the trust deed that you need to see. 

xylophone

Have you obtained a copy of the Will (see link above) that created the Trust?

Fable1506

Thanks again......   I now find out ( this morning ) that the trust was 'liquidated' by solicitors ( as suggested by the Investment Fund Management ) in early September and the trust funds are being held in a bank.

I'll certainly follow the link from Xylophone and see what light that may throw on the matter.

I still can't fathom why on earth this information hasn't been passed on to me.... hey, ho, families, eh?! :-:smile:

xylophone

I'll certainly follow the link from Xylophone and see what light that may throw on the matter.

You need to look at the exact wording of the clause in the will that pertained to the Trust and to the named actual or potential beneficiaries of that Trust.

Fable1506

Upate.  After a few months of ' nothingness' from the trustees I got a message ( via FB ) saying nothing would be happening for several years but two of the beneficiaries - incidentally the two trustees! - would be prepared to pay me an amount to settle any claim I would have from the fund., rather than me have to wait for an indeterminate period of time. The amount was approx. 50% of what my share would be. How strange, thought I ??

I politely declined saying I'd be happy enough to follow the correct process as and when it happened.

Last week I got an e-mail from the other beneficiary ( non trustee ) asking for my bank details as the trust was now resolved and the solicitor needed it to send me my share.  The full amount of money I'd 'expected' from my share of the fund was paid into my account from the solicitors 5 days later, 

Nowt so strange as folks, eh? Not at all sure what the two trustees were playing at, but I'm just happy it's done and dusted.

Thank you for the advice and comments.