Trust for children managed by bank

Pheriche

My mother-in-law has put some money into a trust for her grandchildren (including my children). This has been done to help them out with future university costs, and done in this way to reduce liability for inheritance tax.

So far, so good, but she has done this without talking to my wife or sister-in-law and has been hoodwinked into contracting a high street bank into managing the money and appointing them the sole trustee. Their fees are huge, running to several thousands of pounds a year for very little work, and although they are to be consulted when the money comes to be distributed, my wife or sister-in-law have no control over the money. This could have been managed so much more conveniently if the trust had been set up with them as trustees, but here we are…

My question is whether there is any way to get out of this arrangement. I've seen the paperwork and it looks like quite shady practice by the bank to advise choosing themselves as trustee with a long list of reasons, without ever suggesting an alternative or even that the matter be discussed with my wife or sister-in-law, so I'm wondering if it could count as mis-selling?

The other option might be to create new trusts for each of the grandchildren and try to get the share for each transferred to those as soon as they first become payable (when each child reaches 18) though I guess this would involve getting the consent of the bank, who would be swayed by the desire to continue receiving huge fees…

(For context, my mother-in-law is still with us; she is compos mentis, but not the sort of person to listen to reason and though she is dismayed at the scale of the fees, she also seems to be clinging on with blind faith that the bank is to be trusted ('because it's ****** Bank'). The trust was set up 4 years ago. The eldest grandchild is 15, the youngest 12)

elsien

Hoodwinked is a strong word to use without evidence of anything except perhaps your mother-in-law misunderstanding the scale of the fees. Which she would have had written information about at the time.

Regardless of anything else, she is the bank’s customer. If she does not wish to challenge things, whatever your opinion about potential mis-selling there is nothing you can do about it.

As your mother-in-law had capacity at the time of the transaction, there was no reason or obligation for the bank to suggest directly involving anyone else in the discussions unless your mother-in-law indicated that was what she wanted.

What does the Trust document itself say about a change of trustee because that would need to be her starting point?

Albermarle

Their fees are huge, running to several thousands of pounds a year for very little work

Which is why banks and some advisors/solicitors plug trusts, even though in many cases they do not work and/or cause a lot of hassle.

Keep_pedalling

It should be possible to change the trustees and move the investment, but far from being little work discretionary trusts are a pain in the backside to manage.

dunstonh

So far, so good, but she has done this without talking to my wife or sister-in-law and has been hoodwinked into contracting a high street bank into managing the money and appointing them the sole trustee. 

Banks do not grab hold of people and tell them to do things that they person doesn't want to do.

However, if the person goes to the bank and asks them what they can do, then the bank will do it.

My question is whether there is any way to get out of this arrangement. I've seen the paperwork and it looks like quite shady practice by the bank to advise choosing themselves as trustee with a long list of reasons, without ever suggesting an alternative or even that the matter be discussed with my wife or sister-in-law, so I'm wondering if it could count as mis-selling?

Banks retail their own products and with them providing the services. It is disclosed in one of the first documents issued. So, it shouldn't come as a surprise to the individual setting these things up that the bank has done exactly what they said they would do.

and though she is dismayed at the scale of the fees

Banks are notoriously expensive but she would have been told the fees in advance and had the opportunity to exit before incurring those fees.

Busting the trust or changing things will depend on the trust and tax and the investment products used.

poseidon1

You say your mother in law is compos mentis. All trusts established by living settlors include a clause allowing the settlor to change trustees should they wish, and new trustees are not bound to continue with the services of the incumbent investment managers.

However, you also state that notwithstanding the disturbing level of fees , your MIL is still not inclined to move the trust.

You say you have seen the paperwork which I assume by that you refer to the original trust deed and client agreement.

However, in addition to managing the investments the bank is obliged to produce annual trust accounts, prepare and submit annual trust tax returns with ancillary tax deduction certificates for income distributions to beneficiaries. If the trust is fully discretionary, there will also be periodic Inheritance tax returns to do every 10 years, with complex intermediate record keeping of any capital payments to beneficiaries within each 10 year cycle.

In other words alot of work behind the scenes much of which you won't see, but at a level of complexity far beyond the capabilities of the general public.

If you are to wean your MIL away from the bank on the basis her own children are made trustees, they would need to get quotes from a chartered accountancy firm to handle all the accounting and tax compliance work for the trust.

As regards investment management, on the assumption that your MIL would only be comfortable with this being handled by a specialist wealth manager with competency in trustee investment matters, you would need a further quote from 2 or 3 firms in this area.

Once you have the fee quotes for these separate heads of services, you can see how this compares with that of the bank. Overall their combined fees may not be much difference, but I do know some banks have a habit of stuffing their captive clients with their own in-house unit trusts/oeics which are not demonstrably top tier performers in their relevant sectors, so moving from the bank to arms length separate professional services, maybe the main benefit compared to leaving the trust to the current bank trustee management arrangement.

In passing as an trust administrator of many years standing and professional adviser to trustees ( prior to retiring), there is no way I or my respective firms would allow a client's trust be controlled by any bank in the manner your MIL has chosen fit to do, if for no other reason than there is no independent oversight of the bank's activities.