Discretionary trusts

Albermarle

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

I believe if the discretionary trust is set up after you die ( ie it is in your will) then it is not subject to so many tax issues?

Presumably because it would come out of your estate, after any IHT due had already been paid?

Shedman

Having had to deal with various trusts set up (with the best intentions) by my parents my view would be avoid them unless there are serious IHT benefits and no other more straightforward alternatives and you or other trustees (and more relevantly anybody that might end on taking on trustee roles after you've departed e.g. the beneficiaries or other relatives) are confident dealing with sometimes tricky tax issues and what can be onerous reporting requirements unless you're prepared for the trust to pay professional trustees.  (I'm a qualified accountant and find the administration challenging...I would like to wind up the trusts before I get too decrepit to deal with them - as my kids wouldn't have a clue - but even that creates other problems ).  

I would also recommend ensuring that there is sufficient cash / bank deposits left in the trusts to settle any tax that becomes due as there is potentially quite onerous tax on encashment of investment bonds and non cash assets within the trust (as the trust has to settle tax due otherwise if settled by say the trustees out of their own funds it can be deemed as an additional settlement into the trust).  

And based on our experience with regard to SJP (and to make @Albermarle happy 😅) I would say 'Don't' as you don't even get efficient admin from them for the excessive fees they charge.

UncleK

Folks, huge thanks for advice so far and feel free to keep it coming.

I actually saw a SJP presentation on the subject recently but then looked at their fees and got a serious nose bleed - plus you're stuck with their funds. I guess for some the benefit of a one-stop shop make things straightforward, but not good value for in our eyes.

Discretionary trusts (abrdn.com) - very helpful thank you. This confirms what I thought about tax to start the trust and some helpful details about taxation ongoing and exiting the trust. We would be looking to wind up the trusts when the beneficiaries are "old enough" to handle the amounts in question.

Also the gov.uk and step.org ones - which I had seen but always useful to have others find them useful as well.

We had already had some IFA advice as part of my redundancy leaving package and concluded that a discretionary trust now was the appropriate thing to do and that the size of our estate justfied that. The IFA in question wanted to wrap their arms round everything whereas we think we can do most things ourselves - just not sure about this.

Having said that, the mechanics (accounts, etc.) have not yet been commented on so maybe (as some suggest) an IFA is required. Indeed, certainly not a Wealth Management gang. IFA probably on an hourly rather than percentage basis, I guess.

Like I say, more thoughts more than welcome.

Cheers

Keep_pedalling

If the IFA was paid by your ex employer rather than you I would be looking for a second opinion. How old are your children, if adults are they home owners yet?

UncleK

Children are early/mid-twenties and not home owners yet. Point taken on IFA advice although it does jive with other research I have done. I did look at the gifting and pension options but I don't think they suit us. Thanks for suggestions though.

Keep_pedalling

UncleK said:

Children are early/mid-twenties and not home owners yet. Point taken on IFA advice although it does jive with other research I have done. I did look at the gifting and pension options but I don't think they suit us. Thanks for suggestions though.

So not far away from both of them wanting to get on the property ladder. In your shoes I would wait until they are looking to purchase their first house and make simple gifts then to boost their deposits. A DT is just going to complicate your life, and you can always cover your estates in case you both make an early exit from this life though term insurance which is probably a lot cheaper than setting up and managing a DT.

UncleK

Simple gifts would indeed be straightforward but we're not sure when would be the right time. First house sounds simple but it might not be that simple. Sorry to be so vague. Like I say, an decent IFA beckons, methinks.

xylophone

If you are intent on going down the path of a discretionary trust, (and having had something to do with Trusts over the years I's say stay off it unless there really is no other way), then you should consult an experienced solicitor concerning drafting the terms of the Trust.

Don't forget the need for registration of the Trust with HMRC.

As for accounts etc, you may find that financial institutions can be somewhat sticky about opening these.

That said, a family member was the Trustee of a Trust where Barclays held the current account and the Trust  investment account was held on a  stockbroking platform.

Once these are set up, it is very much like managing your own SIPP/ISA as far as choosing funds/shares is concerned.

UncleK

OK thanks. We are talking to a STEP solicitor (assuming we still go with a DT - not a given) and if we do, then maybe an IFA can help us with financial institutions. Interesting what you say about a SIPP/ISA once up and running.

Keep_pedalling

Although with a SIPP or ISA you don’t have to file tax returns, so not quite as simple.