Discretionary Will trust - only asset a loan note

Daniel54

By way of background, my mother died in 2017 and left my sister’s share in a discretionary trust ,of which I am a trustee.Purpose of the trust was to safeguard the inheritance for my sister’s children or subsequent descendants after her second marriage.

The trust is not registered and my question is whether it needs to be

The terms of the trust set no restriction on my sister’s ability to draw down capital to the point of exhaustion if she felt necessary

On the advice of a STEP qualified solicitor the entire inheritance was loaned to my sister interest free,repayable on demand or on death.This loan note is documented and kept alongside the relevant wills of my mother and sister.As such,it forms the only asset of the trust.

My sister pays personal tax as necessary on the investments and income arising from the loaned amount.

Appreciate this is quite a technical question and I have read the links provided by @Poseidon amongst others,but should I register the trust or just let sleeping dogs lie until the time of my sister’s passing,at which time I might well not be around either.?

Any thoughts appreciated.

poseidon1

Notwithstanding the sole asset is now an interest free loan, this is clearly an express trust which does not meet the schedule 3a criteria for a trust exempt from registration.

Therefore it was required to be registered with HMRC by the September 2022, so now overdue.

You have not indicated the amount of the loan, but if in excess of £260k the trust will have a 10 year anniversary reporting obligation in 2027. Worse still, if the loan exceeds the £325k NRB, the trust incurs a 6% IHT liability on the excess. However, no doubt the STEP lawyer covered these aspects when the loan was formalised.

Daniel54

https://forums.moneysavingexpert.com/discussion/comment/81907440#Comment_81907440

Thank you - that is most helpful.The original solicitor has retired but I will take up these points with her successor,as some of these potential issues were not raised at the time.