Trust Bank Account Closing

TrusteeAunty

My husband and I are trustees of a discretionary trust. My sister died 11 years ago and we set up discretionary trust for my niece (as agreed with my sister before she died). My niece and I have a very close relationship and the trust has been really easy to manage over the years. We have had a trust current account with Lloyds and I have an accountant who submits the trust tax return annually. However, Lloyds have informed me that they are closing the account due to changes in regulations. My niece is now 22, but she still wants us to ‘look after’ the money for her (there is just over £200k in the account). We don’t want to over-complicate the process, as we need easy access to the money for her, but we don’t know what to do next, i.e. should we transfer the money to a joint account for the 3 of us instead & if so, would we then still need to do a tax return? Any guidance would be much appreciated.

Cairnpapple

What are you envisioning by 'look after'? Is she looking for e.g. ongoing financial or investment advice from you? Does she want to put in protection from impulse spending or save for a particular purpose such as a house deposit? Or is there any other reason that she would prefer not to have the money in her own name?

Keep_pedalling

Does your niece have any physical or mental disabilities that would justify keeping her inheritance in trust? If not it seems pretty pointless not to wind up the trust and hand over the £200k to your niece.

poseidon1

I believe you were fortunate Lloyds allowed you a trustee current account for as long as they did. The vast majority of high street banks abandoned that market years ago.

There are few alternatives.

Metrobank are one of them, T & Cs below -

https://www.metrobankonline.co.uk/globalassets/trust-bank-account-iis.pdf

They only have allied fixed interest accounts the best (1 year ) paying a not especially brilliant 2.2%.

On say £175k that is only £3,850 and if as you suggest it is being taxed at a discretionary trust rate of 40% that leaves just £2,310 distributable to your niece upon which she can potentially recover some or all the tax paid depending on her own tax position ( a cumbersome arrangement)

I also note there is an accountant in the picture, so no doubt there are professional fees being incurred further impacting on what is a fairly modest sized trust fund.

Accordingly, and echoing @Cairnpapple's question is there any reason why the formal trust in favour of your niece cannot now be terminated on her behalf by an appropriate deed?

Although you could continue to hold funds on her behalf as bare trustees thereafter ( and avoid 40% trust tax going forward), this could be tricky when placing funds on interest deposit in avoiding the savings institution treating any interest as your personal income and reporting to HMRC on that basis.

Given your niece's age does she suffer some kind of disability whereby she personally prefers you both continuing to control her trust fund, rather than taking charge herself ( with your guidance)?

Apart from anything else she is missing out on tax beneficial personal accounts such as ISAs where she could be sheltering £20,000 per year from tax completely.

EDIT

Apologies , the references to 40% tax should have read 45%, the rate applicable to discretionary trust income.

SadCodeMan

Just adding to @poseidon1 's message above.

One option is to try one of the platforms which allow you to set up family linked accounts. I think AJ Bell and Hargreves Lansdown both have that option but I am sure there are others.

This would allow your niece to hold the investments in her own name (to take advantage of ISA wrappers etc) but would allow here to give you permission to look after the investments.

She would have her own details and would be able to remove the 'permission' in the future if here desires changed which sounds a sensible setup too?

HillStreetBlues

Is the niece on any income related benefits?