Discretionary Trust Will

Ozro

Hi, I have just read a big article in the Telegraph recently about discretionary trusts being set up. I wonder if someone can give me a bit of advice. I do have a solicitor but want to make sure I have the correct information before seeing them.
My dad recently died and we are near to finalising probate. The solicitor has said we then need to deal with the Trust element of his Will. Basically he ring fenced £325K to put into a trust for my mum, myself and my sister.
So the Telegraph article has put doubt in my mind that a discretionary trust is the right thing to do. My mum, my sister and myself thought it best to put a Charge on the property rather than take some as cash and some as a Charge to avoid ongoing Solicitor's fees to deal with the Trust.
My dad set this Will up in 2006 and at the time was told this was a good way of protecting £325K from care home fees and other expenses.
So my question is, if we put in the £325K into the trust and my mum ended up in a home (hopefully a private one if there is enough money) would the Council still be able to take the £325K, especially if she is one of the Trustees in the Trust.
Also I presume the best way forward would be for my mum, myself and my sister to be Trustees so that if my mum decides in the future to downsize, we are in control of the house.
Obviously I am wondering whether the advice they got in 2006 regarding discretionary trust isn't what would be advised now.
It is all so confusing when you are dealing with grief.  My mum mentally isn't able to deal with it all and when we go to the Solicitor we both get very confused.
Any help in simple language would be much appreciated.  Thank you.

Emmia

There is an argument that the value of the property your mum lives in should be used in the first instance to fund her care, rather than being an inheritance for you and your sibling.

The money should allow your mum to have care of her choosing, rather than LA funded "over my dead body grange".

If she is likely to need care, then giving money away or seeking to avoid fees in other ways is normally seen as deprivation of assets, and she may be treated as though she still has the money.

Keep_pedalling

This sort of trust became redundant after Gordon Brown introduced the transferable NRB in 2007, and you are right a descresionary trust is almost certainly not appropriate. Not only that they are expensive to run and not tax efficient.

The simplest thing to do is for you all to do a deed of variation to get rid it.

I am puzzled by your care statement, if you want your mother to have access to private care then she will be self funding  and the LA will have nothing to do with it. This is my view is a very good thing as I certainly don’t want to dependant on a cash strapped LA for care and if possible I would opt for live in carers rather than residential which requires quite a bit of cash. 

The best option for your mother’s long term security and having access to best care she can get if she needs it would be a DoV passing the whole £325k to her. What other assets does she have? 

Ozro

thank you for your comments. My mum is lucky in that her property is worth around £800K. At the moment she also has disposable cash so I think she would be able to self fund her own care if needed.  My dad wanted my sister and I to have access to the £325K if my mum didn't need it, hence set up discretionary trust will to protect it. We both have much smaller properties and children who are autistic and dependent on us so my dad probably wouldn't want my mum transferring the whole £325K to her.
We are not trying to avoid care home fees as my mum would be the priority, after all it is their money they worked for. My question was just whether discretionary trusts are the best thing to do as my dad's sole wish was to protect this money and it is his wish that I want to if at all possible keep to.  Obviously if we do get some inheritance then that would be lovely and much needed by my children who definitely can't afford to buy anywhere.
It will be interesting to see what the Solicitor says if the DT is not a tax efficient way of dealing with my dad's wish

Keep_pedalling

Ozro said:

thank you for your comments. My mum is lucky in that her property is worth around £800K. At the moment she also has disposable cash so I think she would be able to self fund her own care if needed.  My dad wanted my sister and I to have access to the £325K if my mum didn't need it, hence set up discretionary trust will to protect it. We both have much smaller properties and children who are autistic and dependent on us so my dad probably wouldn't want my mum transferring the whole £325K to her.
We are not trying to avoid care home fees as my mum would be the priority, after all it is their money they worked for. My question was just whether discretionary trusts are the best thing to do as my dad's sole wish was to protect this money and it is his wish that I want to if at all possible keep to.  Obviously if we do get some inheritance then that would be lovely and much needed by my children who definitely can't afford to buy anywhere.
It will be interesting to see what the Solicitor says if the DT is not a tax efficient way of dealing with my dad's wish

Thanks for the extra info. With the level of assets she has then I think the best option is to do away with the trust with a DoV and pass his entire estate to your mother. She can then make cash gifts to you and your sibling. This leaves her with £1M of IHT exemptions and any gifts she makes will fall out of her estate if she survives 7 years.

Does your mother have lasting powers of attorney in place?

Ozro

Umm food for thought!  And yes we do.
Unfortunately my mum is undergoing treatment for cancer now - its been a horrible year with my dad as well. 
She has been making gifts although £3,000 spread between myself, my sister and the grandchildren is so low. I find it hard that she can't give more than this away, which she wants to do, as she is stressing over IHT.  I said to just give the gifts if it makes her happy and we would worry about the IHT in the future, if indeed we need to pay it.  

RAS

She is aware that if her entire estate is valued at £1m, then her estate may not pay any IHT?

She needs advice as if this trust reduces her IHT allowances and by how much. Then advice as to the costs of retaining the trust.

Ozro

Yes she is aware, although her property and assets etc will take her over the £1M mark. I think I am mindful that if mum did go into care or required care at home, then my dad really wanted to protect the £325K so if I do a DofV and get rid of the Trust he wanted, I am essentially going against his wishes.  It is a dilemma. Will just need a meeting with the Solicitors to explore our options. Think the Telegraph article made my mum worry about it all.  I have to remind her that actually she is in quite a good position but with everything that has gone on, this obviously isn't how she feels.

Keep_pedalling

Ozro said:

Umm food for thought!  And yes we do.
Unfortunately my mum is undergoing treatment for cancer now - its been a horrible year with my dad as well. 
She has been making gifts although £3,000 spread between myself, my sister and the grandchildren is so low. I find it hard that she can't give more than this away, which she wants to do, as she is stressing over IHT.  I said to just give the gifts if it makes her happy and we would worry about the IHT in the future, if indeed we need to pay it.  

Gifting never has a negative impact on IHT. We have made significant gifts over the last 10 years, and apart from reducing our IHT liability, like your mother would like to do,  we have been able to see our excess wealth put to good use by our children, something that is impossible do do once your are dead.

Lets say for example that your mother has total assets of £1.3 million and has the full £1M of exemption.

If she keeps all of it her estate will have an IHT liability of £120k (40% of £300) 

If on the other hand she gives away £300k her estate will still have an IHT liability of £120k but if she lives another 7 years that will reduce to zero.

So the worse that can happen if you gift larger sums of money is that you don’t live 7 years after gifting and the tax liability stays the same. 

Ozro

Thank you, that is how I have tried to put it to her but actually you have probably explained it very well so I will use your explanation.  I would love her to help the grandchildren and it will give her pleasure to do so.  I think she is concerned that she won't last the 7 years obviously with her diagnosis and I think the prospect of paying £120K perhaps frightens her. 
And I suppose if she went into a care home and we used all her cash assets and a lot of the property, then it would take her below the IHT limit anyway so then nothing would be payable on the gifts if they were added back into the pot.  Think I have that right.
OK a lot to think about but at least I have more of an understanding when I go to the solicitors.

lr1277

When you (and your mum) visit the solicitor be very clear in your mind exactly what you want.

I have a tiny bit of experience of solicitor making suggestions that would go against what I (and my parents) wanted.

For a bit of info: My parents made wills in or around 2006 which put all assets into a Trust. As I would be the executor I would have to manage these trusts, inform HMRC and also pay tax on any income generated by the Trust. Because of the changes in the law, I felt it was better if my parents' wills said everything is given to the other on death and when the 2nd parent dies, the assets would be split equally between me and my brother. I made this argument to my parents and they eventually agreed, though it did take a few months of persuasion.

When my parents and I were talking to the solicitor about what was required in the will, he started talking about putting things into Trust. I pointed out my parents wanted simple wills. I don't know how far or in what direction the solicitor would have taken the discussion about Trusts. It is possible he may have suggested something beneficial, we will never know. As a beneficiary I am happy with the way my parents' wills were written.

So if you solicitor does something you don't know anything about or aren't keen on either ask for more informtion or set the solicitor straight.