Discretionary trust document

AKW

Hi MoneySavers,
does anyone know of a website where I can get a template for a Discretionary Trust Deed? 

tacpot12

I doubt you will find a template. Trusts are a complex area, and trust documents are usually written to order, and in a way to meet the very specific needs of the person making the trust. It's a job for a solicitor. DIY is likely to lead to a trust that cannot be legally administered, and the trustees might find themselves legally liable for all sorts of issues.

Take advice from a full member of the Society for Trust and Estate Practitioners (STEP). If you can't afford the advice, don't set up a trust. It will cost you more than the advice will cost you. 

Be aware of the requirement to register trusts and check if there will be any need to pay Inheritance Tax at any point in the trust's life. 

AKW

Thank you, tacpot12, for your voice of caution. I read trust forums. There are always a lot of questions by people that have been tied up in unsuitable arrangements, even though they followed advice. That is my motivation for self-education.
What would make a trust incapable of being administered legally? Trustees must act for the benefit of the beneficiaries, and they must tell HMRC and pay the taxes due.

I think the two main points for taxation matters are
1) The exclusion of the settlor as a beneficiary
and
2) Unrestricted and discretionary power for the trustees to act in the beneficiary's interest.
We certainly won't write a law firm in as trustees because that can lead to severe problems.
We looked into all the aspects and effects of a CLT, NRB available, how a failed PET would affect the NRB, 7yr and 14yr rule, tax returns and tax payments.

Incidently, to register a trust, you just need a gov gateway ID, and it's free (whilst a solicitor will charge about £300+ Vat). It might be the case that lots of different trusts for specific scenarios are complicated, but after all, trusts have been used since the crusades and are used widely.

I found this one, which seems to cover all aspects:
But if anyone has any comments, I would take notice of them

By the way, I am not recommending this trust template, its just one that I found. I am not an advisor.

https://baselgovernance.org/sites/default/files/2021-06/Example Trust Deed final 24.6.21.pdf

DullGreyGuy

AKW said:

Hi MoneySavers,
does anyone know of a website where I can get a template for a Discretionary Trust Deed? 

What do you need it for? If its for insurance or such the insurer will typically have a template they provide

AKW

thanks GreyGuy,
it is for a commercial property with rental revenue. The income should be distributed to the grandchilden. I am in favour of a DT rather than a IIP trust. 

Keep_pedalling

AKW said:

thanks GreyGuy,
it is for a commercial property with rental revenue. The income should be distributed to the grandchilden. I am in favour of a DT rather than a IIP trust. 

Why? Taxation rates on a DT are very high.

AKW

Hi KP, This is what we were advised: initially the Dtrust will pay 45% income tax (accounted for in a tax pool), but on distribution the tax due is on the beneficiary's tax rate, and whilst the grandchildren are minors they will have unused freepay. The beneficiary will get a tax credit and can make a claim for a refund in their SA, provided the tax reclaimed does not exceed the tax pool. 
The tax rate of income to an IIP is just 20% or, if the income was paid directly to the beneficiaries, they could even receive the income gross of tax. But the IIP is no where near as adaptabe. It would require the distribution amount and term to be fixed from the outset (I think). But we don't know what the future brings, what if one of the grandchildren becomes reckless or manipulated, we would not want to fund or encourage that!

Any comments highly appreciated

poseidon1

AKW said:

Hi KP, This is what we were advised: initially the Dtrust will pay 45% income tax (accounted for in a tax pool), but on distribution the tax due is on the beneficiary's tax rate, and whilst the grandchildren are minors they will have unused freepay. The beneficiary will get a tax credit and can make a claim for a refund in their SA, provided the tax reclaimed does not exceed the tax pool. 
The tax rate of income to an IIP is just 20% or, if the income was paid directly to the beneficiaries, they could even receive the income gross of tax. But the IIP is no where near as adaptabe. It would require the distribution amount and term to be fixed from the outset (I think). But we don't know what the future brings, what if one of the grandchildren becomes reckless or manipulated, we would not want to fund or encourage that!

Any comments highly appreciated

Just seen this thread so coming very late in the discussion. Income tax at 45% is only a small part of the disadvantage of what you proposed. Herein in a few other pertinent points you have not covered or indicated any awareness:

* Gifts of assets into a discretionary trust are disposals for capital gains tax purposes. If the property in question now shows a gain relative to original purchase price this maybe taxable on the settlor unless 'heldover' into the hands of the trustees. Suggest you research cgt holdover relief elections in HMRC's online manuals.

* Gifts to discretionary trusts are liable to IHT at 20% ( half the death rate) if the value exceeds the NRB of a single settlor or both NRBs for joint settlors. Going forward and subject to surviving between 7 and 14 years ( depending on other gifts) the trust enjoys its own ongoing NRB.

* 10 year anniversary IHT charges at 6% - Nothing in your post mentions this. I won't go into any detail since important you research this to understand how the trust fund will fund potential recurring liabilties of this nature on the value of the trust fund from an illiquid asset where you do not proposed to set aside any of the future income stream to help meet potential liabilities.

Finally, given that discretionary trust taxation, administration, compliance , accounting and trust law is the most complex of all the different genres of English trusts, it is definitely not an area for untutored amateurs to be dabbling on a DIY basis. 

AKW

Hi Poseidon, many thanks for your comments.
Do you find that an ordinary person can't manage the administration requirements of a trust? From what I read, it's trust registration, pay 45% income tax at distribution, beneficiary claim tax back on self-assessments, paper return or commercial software required, trust needs to submit SA, and commercial software is required.
CGT, of course, it's a chargeable transfer, but holdover is available, both at entry and at exit.
IHT, of course, 6% at 10 years or at exit, calculated on value above the trust's NRB
Failed PET's become CLTs if the settlor does not survive 7 years. After 7 years, the trust regains a full NRB.
I am less confident about the trust deed, three certainties, and resulting trusts. Equity and Trust is complex. But surely, it is widely used, and it can't be that hard to write a workable trust deed. I would never enter into anything like this whilst blindly trusting the professionals; that is a much bigger risk, in my humble opinion.