Bare Trust - Multiple beneficiaries?

poseidon1

xylophone said:

My parents set up a bare trust for my two children as joint beneficiaries. My parents are Trustees. The Trust was set up in DIY fashion by my father and has not been registered.

"so long as the Beneficiaries are under the age of 18 years the Trustees may pay or otherwise apply for or towards the maintenance, education or benefit of the Beneficiaries the whole or such part or parts in equal amounts or otherwise to either of the Beneficiaries of the income and or capital of the Trust Fund as the Trustees in their absolute discretion think fit"

Are you sure that this is a bare trust?

Should it be registered?

https://www.theprivateoffice.com/specialist-services/bare-trusts

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

Do you need professional advice from a solicitor expert in trusts?

Absolutely agree with xylophone and this highlights the danger of non professionals setting up  DIY trusts and adopting a 'pick and mix' approach to the inclusion of trustee  administrative powers.

The clause your father unwisely inserted into this so called bare trust, invoked discretionary powers over income and capital which meant over the entire trust period so far, the trust was a discretionary trust for income tax purposes.

 This means the income was taxable on the trustees at the top rate of 45%, and only recoverable by the beneficiaries in the event of income actually distributed to them and then only after making formal tax refund requests on their behalf. 

Focusing on that clause alone might suggest potential to divert the entire trust fund to the  eldest child unless there are other clauses that might conflict ( often a problem with DIY trusts), but you will first  have to deal with all those past years of trust income tax non compliance, and failure to register the trust on HMRCs Trust register. I hope we are not talking about significant capital and income here, since HMRC penalties and interest on unpaid tax could be sizeable. The position is worsen if funds were invested and capital gains tax becomes part of the mix.

You will likely need professional help to navigate matters with HMRC, and to initiate  and execute the  trust termination as desired ( sounds like a termination deed will be necessary),  but only after all tax compliance is brought up to date.

Hopefully a salutary lesson for other would be DIY creators of trusts who periodically query this forum.