Discretionary Trust from a Will – Trustee Investment
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charliebank
Posts: 5 Forumite
My Father passed away last year, creating a Discretionary Trust in his Will to hold his nil-rate inheritance tax assets. My Mother and I are the trustees, and also beneficiaries, plus my children.
Probate and tax liabilities have all been settled, and my Mother and I are the joint named account holders in the “Trust Bank Account” – a named HSBC account holding the cash, but on zero interest. Time to invest.
My question is:- Can I simply open a savings account in my sole name, and with the Trustees agreement invest some of the Trust’s cash in that savings account, treating all of the interest it earns as income to the Trust?
My concern is any need to open a “special” savings account that is identified as being a Trust. Or the need to open a joint named account with my Mother being the other trustee. When we made enquiries last year at building societies about opening a “Trust Savings Account” this seemed to cause great confusion. HSBC understood the need for an account to receive the cash but they don’t pay interest.
Probate and tax liabilities have all been settled, and my Mother and I are the joint named account holders in the “Trust Bank Account” – a named HSBC account holding the cash, but on zero interest. Time to invest.
My question is:- Can I simply open a savings account in my sole name, and with the Trustees agreement invest some of the Trust’s cash in that savings account, treating all of the interest it earns as income to the Trust?
My concern is any need to open a “special” savings account that is identified as being a Trust. Or the need to open a joint named account with my Mother being the other trustee. When we made enquiries last year at building societies about opening a “Trust Savings Account” this seemed to cause great confusion. HSBC understood the need for an account to receive the cash but they don’t pay interest.
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Comments
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It should be possible to open accounts (whether investment or interest bearing) in the name of the Trustees - however, the income on this is Trust income and there are tax implications.
See https://www.hl.co.uk/investment-services/compare-accounts
https://www.bathbuildingsociety.co.uk/savings/business-and-professional-accounts/trust-accounts
https://www.gov.uk/trusts-taxes/trusts-and-income-tax
It is possible to choose investments for growth rather than income.
The Trustees might consider lending the money to you/your mother on an interest free basis, repayable on demand of the Trustees and possibly secured against her property/your property etc.
This could give you/your mother the opportunity to save/invest the money in your own names.
It could give your mother the opportunity to make PETS to you/her grandchildren.
You could discuss with the solicitor who drafted the will.0 -
Thank you, and for the url links. It is clear from those that some building societies do offer specific Trust accounts. However, they may not offer the best interest.
I suppose what I am further asking is….
Assuming we (the Trustees) are happy that the funds and income (and any capital growth) are always contained entirely within the Trust (and I appreciate the tax implications of that)…are we breaking any rules/laws by not using a specific Trust type savings account? Are we misrepresenting our position if we simply open an ordinary savings account in a single Trustee’s name without informing the BS that it is a Trust asset rather than a personal asset, and transfer money from the Trust (current bank) account into this savings account. We would declare this asset and any income/gains in the Trust’s future Tax return to HMRC, and all with written agreement of all Trustees.
I appreciate there are loans and other mechanisms for minimising Trust tax, but we are looking for the simplest approach so we can compare. Although Trust income tax rates are high, it may still be preferable to gain the best interest rate through a personal savings account (not an ISA of course). Noting we may later distribute that income to beneficiaries for them to reclaim tax personally.
Any red flags on why this might not be allowed would be appreciated.0 -
I am no expert but I would say that if these are Trust monies, then they need to be saved/invested in a specific Trust account.
In one case I know of such a Trust, the funds were initially held in a Trust Bank Account (three Trustees, solicitor/widow/ son) and then transferred to a stocks and shares account held in the name of the Trustees of the XYZ Will Trust.
The income arising was paid to the widow and a Trust Tax Return made each year as required to HMRC.
The widow decided after a few years that she did not need the income - the investments were liquidated and the Trustees agreed to make an interest free loan of the whole amount to the widow - HMRC were advised accordingly.
In this particular case, the widow chose to gift the money to her children in the hope (fulfilled) of PETs.
She repaid the Trust on the sale of her house - the Trustees then chose to lend the money to another of the beneficiaries.
The loan system appears to be the easiest method for the funds to be used by individual beneficiaries?
Take advice as required from the solicitor.0 -
charliebank wrote: »My question is:- Can I simply open a savings account in my sole name, and with the Trustees agreement invest some of the Trust’s cash in that savings account, treating all of the interest it earns as income to the Trust?
This is a very bad idea. The trust's assets must be held separately from your own. If you died or became bankrupt things would get extremely messy. It is not worth a few quid in extra interest.
It does not matter if you have no intention of stealing the money and would keep meticulous records that would make it clear how much of the account was your money and how much the Trust's. Caesar's trustee must be above suspicion. Trustees have a legal duty to keep clear records and any mixing up of the money with personal money violates that.
When do the trustees plan to distribute the money? Is a cash account the most prudent "investment"?0 -
It sounds as if the Loan approach is the safest. Although I suppose one could make the same argument about records, death and Caesar’s dodgy accountant in that loans records could equally vanish.
Anyway, above reproach is what we are aiming for, so loans it is.
Our intention was to only distribute from income generated by the Trust, not to eat into capital or distribute the original fund itself. My understanding is that Trust income can be distributed after trust income tax has been paid (by the Trustees), but that the beneficiary and recipient of that distribution may be able to claim some/all of that tax back through their self-assessment tax return, at the appropriate rate.0 -
On each occasion a loan was made, a formal loan agreement was drawn up by the solicitor trustee.Anyway, above reproach is what we are aiming for, so loans it is.
The Trustee current account is kept open and non-dormant by the "debtor" making token repayments monthly to the account - a fact also noted by the solicitor trustee.0 -
You mentioned above that loans can be made on an interest free basis, where there appears to be the requirement for the loan agreement to allow for the Trustees to recall the loan at any time, and for it to be a secured loan.
Is this rule written down and defined anywhere? Or is it merely HMRC lore based on a history of lost (or won) cases when challenged?
Is it safer for the Trust to charge a reasonable interest rate on these loans, treat that interest as income, and then distribute that income back to the beneficiaries, paying and then reclaiming tax as appropriate?0 -
Sorry to jump in here - this is the first time I have used the forum.
I need to set up 3 more Trust accounts for my nephews, already have one with Barclays and one with Nat west but am struggling to find any other banks that offer trust accounts. Any advice please?0 -
We have an HMRC Trust account, in joint names of the Trustees. Although pays no interest. Thread above included Bath BS, that appeared to offer 0.5% interest - although that may not apply to our/your type of trust.0
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Sorry to jump in here - this is the first time I have used the forum.
I need to set up 3 more Trust accounts for my nephews, already have one with Barclays and one with Nat west but am struggling to find any other banks that offer trust accounts. Any advice please?
Are the FSCS compensation limits the issue? Does the trust need £425,000 in cash?0
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