Setting up a bare trust account for child

Reaper

I think we are in agreement on that, we only differ in what happens if a trust is intended to end at 18 but the trustees refuse to release it on the day. Since the investment platform will only deal with trustees I believe the child could only access the money through court action (which they would win), not through any amount of correspondence with the investment platform.

It forces the child to either accept a delay or be prepared to take the trustees to court which is a dramatic undertaking as they are probably parents.

I find it an interesting topic and would love to know if this has happened in practice.

itwasntme001

So based on the replies all of this has left us even more confused!

Should we seek legal advice from a STEP solicitor, with what seems like pretty standard and fairly common thing (bare trust)?  It seems the main contention is the payments for the child's expenses prior to 18.

Given my parents' estate, and having been to a number of advisors, it seems that our choices for something practical is limited for reducing the estate.

poseidon1

itwasntme001 said:

So based on the replies all of this has left us even more confused!

Should we seek legal advice from a STEP solicitor, with what seems like pretty standard and fairly common thing (bare trust)?  It seems the main contention is the payments for the child's expenses prior to 18.

Given my parents' estate, and having been to a number of advisors, it seems that our choices for something practical is limited for reducing the estate.

The bare trust arrangement you seek to put in place is neither standard or straightforward especially for the sums of money anticipated.

A straightforward bare trust ( with no intended bells and whistles) would have grandparent gift monies to parent of grandchild ( or other responsible individual) to hold and accumulate for the child until age 18, and then hand over the resulting cash/asset as required by law. In this scenario the bare trustee is little more than a nominee with limited administrative powers. So a short memorandum of gift would be sufficient documentation between grandparent and trustee.

As stressed in my original post to you, your arrangement seeks to grant trustees discretionary powers  from the outset to apply monies for the child's benefit during its minority and for the trustees to determine what constitutes benefit for that purpose. However its not clear to me  you  are aware where those specific  powers come from.

I really  did not want to blind you with science but  as it may help others, it is necessary to point out that the sole statutory power that would allow bare trustees this scope of discretion is Section 31(1) of the Trustee Act 1925 as later amended (link below).  The Trustee Act sought to codify a long line of trust case law pertaining to trustee powers ,duties and obligations for a wide variety of trusts scenarios including bare trusts.

https://www.legislation.gov.uk/ukpga/Geo5/15-16/19/section/31

In the absence of the trustees formalising their own bare trust document amending section 31 (where needed ) and its ancillary section 32  ( related to trust capital) , you would be importing these statutory provisions wholesale into the bare trust you would be running,  unknowingly.

Now I did refer you to Hargreaves Lansdown Bare Trust pack ( did you look at it?). Thoughtfully  they have done the heavy lifting on behalf of Bare Trustees to provide a modern fit for purpose bare trust, without some of the archaic aspects of 100 year old trust legislation.  AJ Bell's version ( if I can call it that) leaves you with the naked statutory provisions. They certainly do not take responsibility for its suitability for the trustees' circumstances.

Now if having  perused Section 31 you feel confident to move forward with an undocumented bare trust subject to the Section all well and good. However for example, are you confident you know  what constitutes 'authorised investments ' within the meaning of subsection (2)?  Alternatively, if the child decides to marry at age 16, would you be able to determine whether that event overrides the age 18 vesting requirement as set out by clause 2 (ii ) and would the grandparent be happy for that to occur? 

In summary there are bare trusts that don't require legal advice ( simple nominee arrangements) and those where professional  advice would be prudent. Having regard to the above points, I will leave you to judge where your proposed arrangement sits. If I were to be entrusted with potentially hundreds of thousands of pounds for a minor, I know what I would do.

DRS1

Interesting that the HL document specifically excludes section 31 and 32.

poseidon1

DRS1 said:

Interesting that the HL document specifically excludes section 31 and 32.

Precisely. Thanks for taking the time to read it.
The sections do come with a degree  of legislative baggage, so HL in their version of a deed for Bare Trustees have  chosen instead to cherry pick core clauses that they believe will assist trustees. 

itwasntme001

poseidon1 said:

itwasntme001 said:

So based on the replies all of this has left us even more confused!

Should we seek legal advice from a STEP solicitor, with what seems like pretty standard and fairly common thing (bare trust)?  It seems the main contention is the payments for the child's expenses prior to 18.

Given my parents' estate, and having been to a number of advisors, it seems that our choices for something practical is limited for reducing the estate.

The bare trust arrangement you seek to put in place is neither standard or straightforward especially for the sums of money anticipated.

A straightforward bare trust ( with no intended bells and whistles) would have grandparent gift monies to parent of grandchild ( or other responsible individual) to hold and accumulate for the child until age 18, and then hand over the resulting cash/asset as required by law. In this scenario the bare trustee is little more than a nominee with limited administrative powers. So a short memorandum of gift would be sufficient documentation between grandparent and trustee.

As stressed in my original post to you, your arrangement seeks to grant trustees discretionary powers  from the outset to apply monies for the child's benefit during its minority and for the trustees to determine what constitutes benefit for that purpose. However its not clear to me  you  are aware where those specific  powers come from.

I really  did not want to blind you with science but  as it may help others, it is necessary to point out that the sole statutory power that would allow bare trustees this scope of discretion is Section 31(1) of the Trustee Act 1925 as later amended (link below).  The Trustee Act sought to codify a long line of trust case law pertaining to trustee powers ,duties and obligations for a wide variety of trusts scenarios including bare trusts.

https://www.legislation.gov.uk/ukpga/Geo5/15-16/19/section/31

In the absence of the trustees formalising their own bare trust document amending section 31 (where needed ) and its ancillary section 32  ( related to trust capital) , you would be importing these statutory provisions wholesale into the bare trust you would be running,  unknowingly.

Now I did refer you to Hargreaves Lansdown Bare Trust pack ( did you look at it?). Thoughtfully  they have done the heavy lifting on behalf of Bare Trustees to provide a modern fit for purpose bare trust, without some of the archaic aspects of 100 year old trust legislation.  AJ Bell's version ( if I can call it that) leaves you with the naked statutory provisions. They certainly do not take responsibility for its suitability for the trustees' circumstances.

Now if having  perused Section 31 you feel confident to move forward with an undocumented bare trust subject to the Section all well and good. However for example, are you confident you know  what constitutes 'authorised investments ' within the meaning of subsection (2)?  Alternatively, if the child decides to marry at age 16, would you be able to determine whether that event overrides the age 18 vesting requirement as set out by clause 2 (ii ) and would the grandparent be happy for that to occur? 

In summary there are bare trusts that don't require legal advice ( simple nominee arrangements) and those where professional  advice would be prudent. Having regard to the above points, I will leave you to judge where your proposed arrangement sits. If I were to be entrusted with potentially hundreds of thousands of pounds for a minor, I know what I would do.

poseidon1 - many thanks for your continued help on this subject, it really is much appreciated.

I firstly must apoligise for not taking onboard your comments more seriously.  On reflection, I feel quite naive about the whole thing and you are absolutely correct that one needs to be careful with these things, particularly if acting beyond pure nominee capacity.  Keep in mind I am absolutely no legal expert.

I have read the HL bare trust document including the deed and the section 31/32 legislation, although for the latter most of it goes over my head!

With regards to section 31(1)(i), it seems to give explicit power to trustees to use bare trust funds for a child's education, so it is interesting HL chose to exclude this part as well in the Deed.  Their website does also state that paying for schools fees is a grey area, meanwhile paying for a child's car, musical instruments etc is fine.

Presumably a trust deed that excludes section 31/32 as per the HL deed, but brings back in 31(1)(i) would result in paying school fees not longer being a grey area but one which is allowed?

In any case, we will seek expert legal advice on this given the sums.  Alternatively we might choose to have a lower amount gifted into the trust account with no intention to pay anything on behalf of the child before 18, in which case it would simply be a nominee account where legal advice is not required as you say.

DRS1

What is to stop the grandparents entering into the contract with the school to pay the fees for their grandchildren's education?  Would that be regarded as a gift to the parents?

Alternatively aren't there plans for funding school fees where some third party holds some money and pays the fees when they are due?

poseidon1

itwasntme001 said:

poseidon1 said:

itwasntme001 said:

So based on the replies all of this has left us even more confused!

Should we seek legal advice from a STEP solicitor, with what seems like pretty standard and fairly common thing (bare trust)?  It seems the main contention is the payments for the child's expenses prior to 18.

Given my parents' estate, and having been to a number of advisors, it seems that our choices for something practical is limited for reducing the estate.

The bare trust arrangement you seek to put in place is neither standard or straightforward especially for the sums of money anticipated.

A straightforward bare trust ( with no intended bells and whistles) would have grandparent gift monies to parent of grandchild ( or other responsible individual) to hold and accumulate for the child until age 18, and then hand over the resulting cash/asset as required by law. In this scenario the bare trustee is little more than a nominee with limited administrative powers. So a short memorandum of gift would be sufficient documentation between grandparent and trustee.

As stressed in my original post to you, your arrangement seeks to grant trustees discretionary powers  from the outset to apply monies for the child's benefit during its minority and for the trustees to determine what constitutes benefit for that purpose. However its not clear to me  you  are aware where those specific  powers come from.

I really  did not want to blind you with science but  as it may help others, it is necessary to point out that the sole statutory power that would allow bare trustees this scope of discretion is Section 31(1) of the Trustee Act 1925 as later amended (link below).  The Trustee Act sought to codify a long line of trust case law pertaining to trustee powers ,duties and obligations for a wide variety of trusts scenarios including bare trusts.

https://www.legislation.gov.uk/ukpga/Geo5/15-16/19/section/31

In the absence of the trustees formalising their own bare trust document amending section 31 (where needed ) and its ancillary section 32  ( related to trust capital) , you would be importing these statutory provisions wholesale into the bare trust you would be running,  unknowingly.

Now I did refer you to Hargreaves Lansdown Bare Trust pack ( did you look at it?). Thoughtfully  they have done the heavy lifting on behalf of Bare Trustees to provide a modern fit for purpose bare trust, without some of the archaic aspects of 100 year old trust legislation.  AJ Bell's version ( if I can call it that) leaves you with the naked statutory provisions. They certainly do not take responsibility for its suitability for the trustees' circumstances.

Now if having  perused Section 31 you feel confident to move forward with an undocumented bare trust subject to the Section all well and good. However for example, are you confident you know  what constitutes 'authorised investments ' within the meaning of subsection (2)?  Alternatively, if the child decides to marry at age 16, would you be able to determine whether that event overrides the age 18 vesting requirement as set out by clause 2 (ii ) and would the grandparent be happy for that to occur? 

In summary there are bare trusts that don't require legal advice ( simple nominee arrangements) and those where professional  advice would be prudent. Having regard to the above points, I will leave you to judge where your proposed arrangement sits. If I were to be entrusted with potentially hundreds of thousands of pounds for a minor, I know what I would do.

poseidon1 - many thanks for your continued help on this subject, it really is much appreciated.

I firstly must apoligise for not taking onboard your comments more seriously.  On reflection, I feel quite naive about the whole thing and you are absolutely correct that one needs to be careful with these things, particularly if acting beyond pure nominee capacity.  Keep in mind I am absolutely no legal expert.

I have read the HL bare trust document including the deed and the section 31/32 legislation, although for the latter most of it goes over my head!

With regards to section 31(1)(i), it seems to give explicit power to trustees to use bare trust funds for a child's education, so it is interesting HL chose to exclude this part as well in the Deed.  Their website does also state that paying for schools fees is a grey area, meanwhile paying for a child's car, musical instruments etc is fine.

Presumably a trust deed that excludes section 31/32 as per the HL deed, but brings back in 31(1)(i) would result in paying school fees not longer being a grey area but one which is allowed?

In any case, we will seek expert legal advice on this given the sums.  Alternatively we might choose to have a lower amount gifted into the trust account with no intention to pay anything on behalf of the child before 18, in which case it would simply be a nominee account where legal advice is not required as you say.

Took awhile to get there, but you now see the need for specialist advice so that's a good thing. Best to raise any continuing concerns with the adviser.

Your father has a desire to benefit his grandchild whilst addressing his current IHT exposure,  so would be a shame to delay both objectives on the grounds of potential complexity.

poseidon1

[Deleted User] said:

itwasntme001 said:

I have read the HL bare trust document including the deed and the section 31/32 legislation, although for the latter most of it goes over my head!

With regards to section 31(1)(i), it seems to give explicit power to trustees to use bare trust funds for a child's education, so it is interesting HL chose to exclude this part as well in the Deed.  Their website does also state that paying for schools fees is a grey area, meanwhile paying for a child's car, musical instruments etc is fine.

Presumably a trust deed that excludes section 31/32 as per the HL deed, but brings back in 31(1)(i) would result in paying school fees not longer being a grey area but one which is allowed?

I read s31(1)(i) TA 1925 in a slightly different way to you.  It seems to permit income to be used (but says nothing about using the capital or how long before accumulated income becomes capital):

... during the infancy of any such person ... the trustees may, at their sole discretion ... apply for or towards his maintenance, education, or benefit, the whole or such part, if any, of the income of that property as the trustees may think fit,

Agree.

 Position re trust capital commences with  S31 (2) (ii) which infers any income not applied by virtue of s31( 1) (i) as it arises, shall be accumulated and becomes capital.

At that point Section 32 takes over to address trustee powers over trust capital per link below.

https://www.legislation.gov.uk/ukpga/Geo5/15-16/19/section/32/data.xht?view=snippet&wrap=true

itwasntme001

The HL bare trust account only allows for one settlor.  They do not allow you to add additional settlors, even with another page etc.  If both grandparents are gifting the money via a joint account, is it ok to put just one of the settlors and is there anything to consider with this?  Such as for example IHT implications?  Or would the gift still be considered coming from a jointly (i.e. 50-50) and having just one settlor has no impact whatsoever?