Discretionary trusts

UncleK

Apologies if this is in the wrong thread, but I think the emphasis is on the investment bit.
We intend to set up discretionary trusts, to take money out of our estate to reduce our IHT liability. Beneficiaries would be our children - we've considered straightforward gifting but we don't think the time is right for that.
Our plan - and advice and critique on all aspects is welcome - is to get a solicitor to draw up the trust deeds and then my wife and I would be the both the Settlors and Trustees. I presume we'd then need a dedicated bank account for each trust. We'd start by transferring our money there. And then the trust would use all of that to buy some tracker EFTs.
There may be some income generated and thus some tax to pay(?).
I'm not sure on FSCS rules - hopefully this is considered as separate from the settlors and trustees assets? But how does that work with EFTs?
1. So, any obvious flaws?
2. Is this a bonkers idea and I really should be getting a decent IFA to do this for us?
3. Any problems/experience with banks and trust accounts?
4. Any issues with investments held by trusts rather than individuals?
5. Anything I have completely missed?
Any thoughts very welcome.
Cheers

subjecttocontract

We used ' St James Place Wealth  Management' to arrange discretionary trusts for us. Suggest you contact them.

Albermarle

subjecttocontract said:

We used ' St James Place Wealth  Management' to arrange discretionary trusts for us. Suggest you contact them.

I think this is probably the first time ever that a poster on this forum has actually recommending someone to use SJP.
Usually any mention of their name, brings the response ' Don't !' 

Albermarle

UncleK said:

Apologies if this is in the wrong thread, but I think the emphasis is on the investment bit.
We intend to set up discretionary trusts, to take money out of our estate to reduce our IHT liability. Beneficiaries would be our children - we've considered straightforward gifting but we don't think the time is right for that.
Our plan - and advice and critique on all aspects is welcome - is to get a solicitor to draw up the trust deeds and then my wife and I would be the both the Settlors and Trustees. I presume we'd then need a dedicated bank account for each trust. We'd start by transferring our money there. And then the trust would use all of that to buy some tracker EFTs.
There may be some income generated and thus some tax to pay(?).
I'm not sure on FSCS rules - hopefully this is considered as separate from the settlors and trustees assets? But how does that work with EFTs?
1. So, any obvious flaws?
2. Is this a bonkers idea and I really should be getting a decent IFA to do this for us?
3. Any problems/experience with banks and trust accounts?
4. Any issues with investments held by trusts rather than individuals?
5. Anything I have completely missed?
Any thoughts very welcome.
Cheers

Might be worth reading this,
Discretionary trusts (abrdn.com)

bostonerimus

UncleK said:

Apologies if this is in the wrong thread, but I think the emphasis is on the investment bit.
We intend to set up discretionary trusts, to take money out of our estate to reduce our IHT liability. Beneficiaries would be our children - we've considered straightforward gifting but we don't think the time is right for that.
Our plan - and advice and critique on all aspects is welcome - is to get a solicitor to draw up the trust deeds and then my wife and I would be the both the Settlors and Trustees. I presume we'd then need a dedicated bank account for each trust. We'd start by transferring our money there. And then the trust would use all of that to buy some tracker EFTs.
There may be some income generated and thus some tax to pay(?).
I'm not sure on FSCS rules - hopefully this is considered as separate from the settlors and trustees assets? But how does that work with EFTs?
1. So, any obvious flaws?
2. Is this a bonkers idea and I really should be getting a decent IFA to do this for us?
3. Any problems/experience with banks and trust accounts?
4. Any issues with investments held by trusts rather than individuals?
5. Anything I have completely missed?
Any thoughts very welcome.
Cheers

The fact that you are uncertain about the taxes means that you have not done enough research yet. There will be tax implications when you transfer assets to the trust and when they are distributed to the beneficiaries and also annual reporting and taxes to pay on income generated within the trust. You need to work through the tax scenarios. I would also nominate successor trustees just in case you and your wife die suddenly.

SJP mentioned above is notorious for high fees so I would be careful using them or other "wealth management" companies.

Overall I think a trust is probably better used as a way to facilitate passing money onto beneficiaries, not necessarily as a way to manage taxation.

xylophone

https://www.gov.uk/guidance/register-a-trust-as-a-trustee

https://www.gov.uk/trusts-taxes

https://www.step.org/about-step/public

Wildsound

Given the complexity of trusts, you should really be seeing an IFA (SJP are not IFAs...). There are multiple ways you can mitigate IHT, not just through discretionary trusts (e.g. pensions, whole of life insurance) which an IFA should be able to identify for you and your circumstances.

Keep_pedalling

Discretionary trusts are subject to some pretty hefty taxes so I doubt whether this is a good idea.

Have you actually checked that your joint estates will actually be subject to IHT? A married couple with children can leave £1M (if they own a home worth at least £350k). If you have assets in excess of that then I would suggest you would be better off with simple gifting and spending some enjoying yourself.

Other options would be to move some of that wealth into pensions which will fall outside your estate or if you are healthy some term insurance that would cover IHT should you meet an unfortunate early demise.

Mothman

As others have said there are various methods for mitigating IHT so independant financial advice may be worth while. In my experience trusts are best avoided unless absolute necessary, also bare in mind that with some of the IHT mitigation products that are sold by the financial services industry you may just end up exchanging one form of taxation for another.

Our plan is to regularly gift money as soon as possible in the hope we survive another 7yrs, as in our view our children will appreciate the money more as they journey through life, rather than receiving a lump sum inheritance when much of their life is behind them.

Keep_pedalling

Mothman said:

Our plan is to regularly gift money as soon as possible in the hope we survive another 7yrs, as in our view our children will appreciate the money more as they journey through life, rather than receiving a lump sum inheritance when much of their life is behind them.

Might also be worth looking at term insurance to cover the possibility of an untimely death within the 7 years to take away the hope bit of your statement.

Mothman

Keep_pedalling said:

Mothman said:

Our plan is to regularly gift money as soon as possible in the hope we survive another 7yrs, as in our view our children will appreciate the money more as they journey through life, rather than receiving a lump sum inheritance when much of their life is behind them.

Might also be worth looking at term insurance to cover the possibility of an untimely death within the 7 years to take away the hope bit of your statement.

Thanks we will look into this. Also should we receive any inheritance we will probably look to use a deed of variation to pass on a portion directly to the next generation and thus bypassing our estate.