Lending to a discretionary trust

Sterlingtimes

I envisage that the following situation will occur before too long:

A discretionary trust owns a flat worth more than £100,000. The cash in the trust bank account is less than £1,000. The trust can sell the flat in time, but the trust has ongoing expenses such as service charges and land rental for the flat.

Can a trustee make a personal loan to the trust to meet short-term expenses? 

xylophone

https://www.farrer.co.uk/news-and-insights/how-to-lend-to-trustees/

may be of interest.

Are you the only Trustee?

Who are the potential beneficiaries?

As far as I can see, you would be making a loan from you as a private individual to yourself as the Trustee of the Trust.

I am not a solicitor but I would have thought that  there would be no legal obstacle  but that  you should draw up a formal loan agreement and have it formally witnessed and dated by two people in the presence of you and each other as you would for a will.

Would you intend to charge interest? If so, you would need to think very carefully about the rate charged (conflict of your duty to the beneficiary and your own rights) and also about any tax implications?

greyteam1959

Be very aware of the costs that could be incurred with anything to do with a Trust.

Sterlingtimes

xylophone said:

https://www.farrer.co.uk/news-and-insights/how-to-lend-to-trustees/

may be of interest.

Are you the only Trustee?

Who are the potential beneficiaries?

As far as I can see, you would be making a loan from you as a private individual to yourself as the Trustee of the Trust.

I am not a solicitor but I would have thought that  there would be no legal obstacle  but that  you should draw up a formal loan agreement and have it formally witnessed and dated by two people in the presence of you and each other as you would for a will.

Would you intend to charge interest? If so, you would need to think very carefully about the rate charged (conflict of your duty to the beneficiary and your own rights) and also about any tax implications?

Thank you. Yes, I am the sole trustee and a potential future beneficiary. The problem I foresee is that without the injection of some cash, the trust would not be able to meet its commitments until the sale of the property. I would not charge interest. I suspect that the flat would need to be priced at a level to achieve a quick sale. I will have a look at your referenced article.

Sterlingtimes

greyteam1959 said:

Be very aware of the costs that could be incurred with anything to do with a Trust.

Thank you. I am aware that I will need legal guidance in the fullness of time and that the cost of that present a problem in that there is no cash in the trust to pay a solicitor. 

Shedman

Have you registered the Trust with the Trust Registration Service (as virtually all trusts now need to be registered...in fact should have been by Sep 2022 I believe)? 

How long has the trust been in existence? As there are potentially requirements to submit tax returns and settle some IHT liabilities depending on value of trust on each 10 year anniversary of the establishment of the trust (plus again potentially tax due on any distribution out of trust to the beneficiaries).   However, I presume from what you've said it Is just the one property in the trust and no other assets apart from the small amount of cash and, based on the value of the flat, you are likely to be OK 

Unless you are proposing to sell the trust asset shortly, distribute proceeds and wind up the trust it might also be an idea to consider adding a second trustee (if the trusts deeds don't prohibit it) so that there aren't issues if anything should happen to you. 

[Apologies in advance if you were already aware of these matters]

Sterlingtimes

Shedman said:

Have you registered the Trust with the Trust Registration Service (as virtually all trusts now need to be registered...in fact should have been by Sep 2022 I believe)? 

How long has the trust been in existence? As there are potentially requirements to submit tax returns and settle some IHT liabilities depending on value of trust on each 10 year anniversary of the establishment of the trust (plus again potentially tax due on any distribution out of trust to the beneficiaries).   However, I presume from what you've said it Is just the one property in the trust and no other assets apart from the small amount of cash and, based on the value of the flat, you are likely to be OK 

Unless you are proposing to sell the trust asset shortly, distribute proceeds and wind up the trust it might also be an idea to consider adding a second trustee (if the trusts deeds don't prohibit it) so that there aren't issues if anything should happen to you. 

[Apologies in advance if you were already aware of these matters]

I am grateful for your response and your pointers. Thank you. The New Zealand trust was executed in 2010. The tax affairs were correctly dealt with by a solicitor in New Zealand, where there is no inheritance tax. None of the beneficiaries that are younger than me has the desire to become a trustee. My mother is the life beneficiary, but she is 94 and has so far had service charges and other costs in relation to the flat met by the trust. The trust is fastly running out of cash. My mother is agreeable to paying the service charges during her life. I can only think of providing the trust with a loan to cover legal and other charges when my mother dies and inform the potential beneficiaries of my actions.