Bare Trust - Multiple beneficiaries?

adamdynamic

Hi,

I'm investigating the process of setting up a bare trust. The intent is to put assets in trust on behalf of two minors (the beneficiaries). What's not clear from my internet research is whether it is better (or indeed even possible) to create a single bare trust with both minors named as beneficiaries, or whether a separate trust should be created for each child. Specifically:

1. Can a bare trust be created with two (or more) beneficiaries?
2. If the assets are used for the benefit of the beneficiaries before they are 18 (e.g. dividend income from shares), must the benefit be shared equally between the two beneficiaries? Or can the trustees allocate funds between the two minors at different rates at different rates as they see fit?
3. What happens when the first minor reaches the age of 18 and wants to take possession of the assets held in trust? Do they receive 50%? Some other figure?
4. How expensive is it to administer a trust on a monthly / annual basis? i.e. is there a significant cost saving to having a single trust?

I'm aware that there are other types of trusts (discretionary trusts, etc). My initial preference is a bare trust as it's the easiest to administer but if complexity of having multiple beneficiaries negates this benefit, I may need to reconsider. 

Thanks in advance for any help  

Adam

eskbanker

I'd have thought that issues like those highlighted in your second and third questions would point towards separate trusts rather than trying to combine into one?

xylophone

It would be preferable to set up a Bare Trust for each child individually.

Don't forget to check on whether the Trust needs to be registered.

https://www.gov.uk/trusts-taxes/registering-a-trust

Remember that the child can call for access and control at the age of 18.

Are you the parent of these children?

If so, be aware of the "£100 rule".

https://www.gov.uk/hmrc-internal-manuals/trusts-settlements-and-estates-manual/tsem4300

https://techzone.abrdn.com/public/iht-est-plan/Prac-guide-gifting-child-grand#:~:text=is £2,500.-,Parental settlements,is per parent, per child.

adamdynamic

xylophone said:

It would be preferable to set up a Bare Trust for each child individually.

Don't forget to check on whether the Trust needs to be registered.

https://www.gov.uk/trusts-taxes/registering-a-trust

Remember that the child can call for access and control at the age of 18.

Are you the parent of these children?

If so, be aware of the "£100 rule".

https://www.gov.uk/hmrc-internal-manuals/trusts-settlements-and-estates-manual/tsem4300

https://techzone.abrdn.com/public/iht-est-plan/Prac-guide-gifting-child-grand#:~:text=is £2,500.-,Parental settlements,is per parent, per child.

Thanks for the reply. The trust(s) would be set up by a Grandparent, I'm just doing some research before speaking to a solicitor (better to enter those conversations informed, rather than paying a solicitor £350 an hour for their information )

I was aware of the initial registration. Other than preparing tax returns for the beneficiaries, are there any on-going reporting requirements for a bare trust? (e.g. as with a private limited company?) I haven't read any references to ongoing reporting requirements online but then "absence of evidence is not evidence of absence"...

xylophone

https://www.gov.uk/trusts-taxes/trustees-tax-responsibilities

As the trustee, you’re responsible for reporting and paying tax on behalf of the trust.

If there are 2 or more trustees, nominate one as the ‘principal acting trustee’ to manage its tax. The other trustees are still accountable, and can be charged tax and interest if the trust does not pay.

Registering a trust

Once a trust becomes liable for tax, you must register the trust with HM Revenue and Customs.

Sending tax returns

You must report the trust’s income and gains in a trust and estate Self Assessment tax return after the end of each tax year. 

wmb194

Children have all of the same tax allowances of adults so it really depends on how much money you're talking about. If you're only talking about a few thousand in a children's savings account you barely need to worry.

Malthusian

Can a bare trust be created with two (or more) beneficiaries?

In theory yes - they would own the trust's assets jointly in the same way as two adults holding a joint account - but it would be a completely pointless complication.

If the assets are used for the benefit of the beneficiaries before they are 18 (e.g. dividend income from shares), must the benefit be shared equally between the two beneficiaries? Or can the trustees allocate funds between the two minors at different rates at different rates as they see fit?

The latter would be a discretionary trust, not a bare trust. It is much more complicated and much less tax-efficient.
Is there any reason you are not setting up Junior ISAs? They are free of income and capital gains tax (which is a bigger advantage than it used to be thanks to the annual CGT allowance being cut to £3,000 per person) and avoid the faff of the HMRC trust register.
They need to be set up by a parent rather than the grandparent, but the grandparents can still pay into it. 

xylophone

Re Junior ISA

https://www.gov.uk/junior-individual-savings-accounts

olbas_oil

How much is involved? If the grandparent wanted to gift more than £9000 per child, in any one year, then that's over the Junior Isa subscription limit and the excess will become a bare trust anyway.
Bare trusts are more flexible than Junior Isas, where the money is locked away until 18. The trustees can agree to release some/all of the money at any stage. Perhaps driving lessons at 17? 
The assets in a bare trust are taxed on the individual. So a Junior Isa has an advantage that it is free of income tax and cgt. But if the child has no other income, they can earn savings allowance/dividend allowance & personal allowance, so probably no  tax liability, depending on the sums involved.

There's no need for legal advice in setting up a bare trust. If you chose the AJ Bell bare trust children's dealing account, there is a declaration of trust included in the application. Bare trusts have to be registered with the Trust Registration Service (bit of a pain...but much easier than it used to be), and the AJ Bell account requires the TRS number.

wmb194

olbas_oil said:

Bare trusts have to be registered with the Trust Registration Service (bit of a pain...but much easier than it used to be), and the AJ Bell account requires the TRS number.

But note that ordinary savings accounts are an exception to this.

TheGreenFrog

If you have multiple beneficiaries then you will need to specify from the outset the relative entitlements of the two beneficiaries (e.g. 50/50, 60/40 etc).  This cannot be changed (or at least not without a transfer of interest from one beneficiary to another which would involve considerable complications) and will dictate how income and capital is allocated (for distributions and for tax purposes).  Can be easier to have multiple beneficiaries depending on the asset involved and intention - e.g. one share dealing account with two beneficiaries having a 50/50 entitlement means everything is done equally and for lower cost and less effort than setting up a share account for each beneficiary and duplicating teh investments in each.