Discretionary trust

I'm hoping for advice on winding up a discretionary trust set up by my father on my mother's death 9 years ago. Half of the family home was put into the trust with me and my siblings as trustees and beneficiaries. The house has now been sold and half of the value belongs to the trust. We now want to withdraw the money and close the trust paying equally to the four siblings. What taxes or exit payments do we have to make? My father was living in the house until January when he moved into a care home. Thanks for any help.

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  • Yorkshireman99
    Yorkshireman99 Posts: 5,470 Forumite
    Katylou65 wrote: »
    I'm hoping for advice on winding up a discretionary trust set up by my father on my mother's death 9 years ago. Half of the family home was put into the trust with me and my siblings as trustees and beneficiaries. The house has now been sold and half of the value belongs to the trust. We now want to withdraw the money and close the trust paying equally to the four siblings. What taxes or exit payments do we have to make? My father was living in the house until January when he moved into a care home. Thanks for any help.
    It will depend on the exact terms of the the trust. You need paid for professional advice from a STEP member.
  • SeniorSam
    SeniorSam Posts: 1,670
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    edited 10 July 2018 at 6:33AM
    The Trustees can dissolve the Trust if they wish and distribute the assets in accordance with the terms of the Will.

    In some cases, the beneficiaries prefer to retain the Trust, which they can for the remaining 80 years, and simply take out loans against their individual bequest. In such cases, the 'Loan' remains an asset of the Trust and can continue on to others if it is the wish of the beneficiaries and agreed by the Trustees. Therefore the inheritance has not added to the beneficiaries estate, which may help with taxes if they are already wealthy.

    For example, if there were assets of £300,000 in a trust and three beneficiaries (A,B &C) with equal ownership, then perhaps beneficiary A may want all their share, beneficiary B may only want part of their inheritance and beneficiary C may not need their inheritance at this time and could well leave it to grow in the Trust for their own beneficiaries. The Trust can have additional beneficiaries for individual ownership when they die

    Discretionary Trusts are very flexible, but you do need to be clear on the wording of the Trust in case there are any special conditions that have been included.

    Retaining a Trust for many years has always been the way that wealthy families retain that wealth. Please be aware also that the assets of the Trust will determine the tax position of the Trust. If it has 'income' producing assets, then income tax is payable, but if the assets are invested for 'Growth' rather than income, as in Funds for example, then no income tax will be payable.

    A good solicitor that is STEP qualified will be able to advise you further, but if retaining the Trust. the present trustees can continue (ideally two as a minimum), ideally family members as long as they can trust one another, but a 'Professional' Trustees is not essential if the Lay persons can manage the assets themselves.

    I hope this helps you
    I'm a retired IFA who specialised for many years in Inheritance Tax, Wills and Trusts. I cannot offer advice now, but my comments here and on Legal Beagles as Sam101 are just meant to be helpful. Do ask questions from the Members who are here to help.
  • Thanks for that helpful advice. Do you know if payments to beneficiaries are subject to income tax? Are there exit fees from a trust?
    Many thanks
  • Yorkshireman99
    Yorkshireman99 Posts: 5,470 Forumite
    edited 10 July 2018 at 12:52PM
    Katylou65 wrote: »
    Thanks for that helpful advice. Do you know if payments to beneficiaries are subject to income tax? Are there exit fees from a trust?
    Many thanks
    Same answer. It depends on the terms of the trust. That is why you MUST get professional advice.
  • SeniorSam
    SeniorSam Posts: 1,670
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    edited 10 July 2018 at 1:58PM
    A bequest from a Will is not subject to income tax by the beneficiary. The passing on of an inheritance by the Trustees to a beneficiary from a Discretionary Trust would not normally attract any exit fees for the beneficiary, but if the Trust assets has been invested, possibly unwisely, then they may be subject to exit fees for encashment, but this would simply reduce the 'net' amount available to be distributed.

    Without knowing what investments are held in the Trust I am unable to offer any more guidance.
    I'm a retired IFA who specialised for many years in Inheritance Tax, Wills and Trusts. I cannot offer advice now, but my comments here and on Legal Beagles as Sam101 are just meant to be helpful. Do ask questions from the Members who are here to help.
  • Thank you - you've been very helpful and I have a better idea of how these work. I will make sure we get professional guidance before doing anything.
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