Property held in discretionary trust and bankruptcy/IVO/DRO...

EmJay246

Hi all,

Hope someone here can advise me on this.

My aunt is planning to set up a discretionary trust to include the family home, where my cousin who is disabled will be allowed to remain living.

Trouble is, cousin is in a hell of a lot of debt, and is potentially going to face bankrupcy or an IVO/DRO at some point in the future.

I'm just wondering if anyone can tell me if the property that's held in a discretionary trust would be consider an asset and be at the mercy of bankruptcy proceedings, or taken into account if my cousin should need to enter an IVO/DRO?

If it matters, he would be a trustee as well as a beneficiary, as would I.

I'm not keen on getting dragged into being a trustee if the property is going to cause issues with him dealing with his debt in the future.

Hoping someone can advise. Thanks.

Browntoa

He may have issues becoming trustee 

When applying to become trustee he would have to disclose it . It may be viewed that he is not a suitable person to carry out the trustee functions.

Not disclosing it would also cause issues 

EmJay246

Browntoa said:

He may have issues becoming trustee 

When applying to become trustee he would have to disclose it . It may be viewed that he is not a suitable person to carry out the trustee functions.

Not disclosing it would also cause issues 

He hasn't yet been made bankrupt/entered into an IVO/DRO....hopefully never will need to...it's just something that's potentially going to happen in the future while the trust is in place.

HappyHarry

A discretionary trust means that the beneficiaries are discretionary.

Therefore no potential beneficiary or their creditors can demand money from the trust as it is not theirs, and may never be if the trustees decide to distribute the funds elsewhere.

Once the funds have been distributed from the trust to the beneficiaries then the creditors could claim direct from the beneficiaries who have received funds.

Keep_pedalling

Is this trust to be created by her will when she dies, or is she planing on doing it in her lifetime?

The latter is probably very unwise and she should do nothing without consulting a STEP solicitor who is qualified to advise on wills and trusts.

ManyWays

Does the aunt know about the debts? It would be a much better idea if the debts were dealt first; if he qualifies for a DRO, why not just go for it, all over in a year? or indeed bankruptcy? And then get the trust set up after that is over.
A beneficiary of a discretionary trust can be a trustee but they have to act in the best interest of the trust, not themselves as beneficiary, are you sure you want to be a trustee with someone who may not be at all good about handling money?