DIY Trust?

[Fuuuuuckit]

I'm about to inherit c£125k.

It was my mum's wish that the 2 dc get a share of her estate but she never got round to making a will.

My mortgage is c£60k and I'd like to set the kids up with £25k each, leaving us with some cash to play with.

I don't want to put it in their names yet dc1 is 18 and is 'living his life' 🙄and🙄and I have no doubt that 25k would be gone in a year. Dc2 is 15.

So, does anyone have any suggestions for a cost-effective sort of trust, or even an 'is it possible' to invest for up to 7 years with potentially some 'approved' access?

I know that 7 years is reasonably short term, and I am quite risk averse (hence paying mortgage off, I'll be saving £400 per month after that).

Ask a solicitor to help you set the trust up. There are tax implications on extra income.

Ask a solicitor to help you set the trust up. There are tax implications on extra income.

I work in Trust tax and to be honest I think compliance costs will eat up any returns. Trusts need a critical mass in terms of value to cover running costs and generate a decent return. £50k won’t cut it.

The benefit of giving assets away though is that if you survive 7 years, it will not be subject to IHT. However, if you have not made other gifts, you will have the Nil Rate Band of £325k, plus possibly the Residence nil rate band of £175k. If you are married your spouse should have the same, sheltering up to £1m.

If the above applies to you I’d be tempted to put the £50k in premium bonds in your name. Any prizes are tax free so no compliance reporting and you still have control. There is an issue however if prizes are scarce and the value is then depleted by inflation. But you are avoiding Trust costs.

Are you married and what would the value of your joint estate be including the £125k?

If less than £650k, or upto £1m depending on the value of your house, I wouldn't bother with a trust bit would keep the money in your own names but "earmarked" for the children, when you judge appropriate.

Reassess regularly to ensure your joint estate remains under the IHT threshold

I'm divorced, total assets if I popped my clogs c£350k including life insurance pay-outs.

It all sounds much more complicated than I was hoping for. Premium bonds seem a safe place (despite minimal returns) and the kids won't know how accessible it is if I don't tell them.

Thanks all.

Short answer: too little money for a trust to be worth all the costs and hassle.

Simplifying, with a bare trust the beneficiaries get the money when they turn 18.
You don't want that, so you need a discretionary trust
www.gov.uk/trusts-taxes/types-of-trust

I won't bore you with all the details, but they can be very expensive and cumbersome to manage. For £25k each, no way is it worth it.

Why do you want a trust? Why don't you just keep the money in your own name and give to your kids as you see fit?
An advantage of the trust is that your creditors cannot go after the money you put in a trust for someone else, but is that a concern for you?

You would need to look into the details of how you invest that money, how it is taxed as yours and how much you can donate without triggering inheritance tax, but at a high level this seems like a better option.

Lots of misinformation on here. I have quite a few trusts of about £50k that I run for peoples kids (alongside their own investments) You hold an open architecture investment bond in a discretionary trust = no income, so no tax return. Allocate out to beneficiary to use their tax status and not the trustees. Job done.

You do not need a solicitor, an in house trust from the provider is perfectly adequate.

a deed of variation would be preferable to ensure compliance to other tax rules. A solicitor is needed for that.

I would look at Quilters, but you may find they do not deal directly with retail clients.

@Weirdlynormal maybe you could elaborate a bit , for everyone's benefit?

"Open architecture" simply means that an intermediary offers the financial products of someone else - e.g. company X sets up and manages the trust for you, and the trust invests in the financial products of company Y

Investment bonds typically pay out when you die or when the bond matures. They may not be the best choice if the discretionary trust requires a "wait and see" approach: i.e. when you cannot predict how much money you will need and when, because it all depends on how the children mature and what they decide they want to do.
www.lloydsbank.com/wealth-management/what-is-an-investment-bond.html (the link is not for you but for the OP)

Quilter, which you mention, has a high level guide on taxation for discretionary trusts: platform.quilter.com/support-and-help/platform-articles-and-technical-insights/entry-periodic-and-exit-charges-quick-reference-guides/
It's not rocket science but neither is it straightforward

It may be easy for you, but are you sure it is as easy for the OP? And what if tax rules change? Would she need to pay an accountant or adviser to stay on top of changes? How much would this eat into 2 x £25k trusts? These are also points to bear in mind

"Open architecture" simply means that an intermediary offers the financial products of someone else - e.g. company X sets up and manages the trust for you, and the trust invests in the financial products of company Y

Er, no it doesn't. It means that it is a bond that isn't provided with insurance company investments (you buy from the Pru and get Pru investments), but a structure where you can invest in the whole universe of funds that is available. You could buy Vanguard 80/20, or Blackrock XXXX. As the equity element is arms length it complies with the tax legislation.

Investment bonds typically pay out when you die or when the bond matures. They may not be the best choice if the discretionary trust requires a "wait and see" approach: i.e. when you cannot predict how much money you will need and when, because it all depends on how the children mature and what they decide they want to do.

Again you are misinformed. There is no maturity date. They can be held on a capital redemption basis, or more commonly (onshore) with lives assured. You can add people unconnected to the ownership to ensure that the bond does not trigger a chargeable event. It is however an area that warrants consideration. If you write it with segments, these can be allocated to the beneficiary and the tax position is extremely flexible. I assume you have no direct experience of any of this?

And what if tax rules change? tax rules of what? Trusts? Bonds. Income tax. What if's would stop you doing anything.

I'm not saying it's easy, I'm saying there is a lot of misinformation on here, and I stand by that. People reading this thread are reading a lot of rubbish.

All that said, if I were the OP I would invest the money in my own name, possibly via a pension (get the tax uplift) and gift the money when I see fit.

Er, yes, open architecture means precisely that, it means that a company can offer the financial products (not just bonds!) of another company:
www.investopedia.com/terms/o/open-architecture.asp
www.pksinvest.com/blog/4-benefits-of-open-architecture-for-independent-rias/
www.wealthdaily.com/articles/open-vs-closed-architecture-investment-platforms/88189

As for rules changing, I was specifically referring to the rules for trusts, which can be already quite complex now.

Except you’re misusing the vocabulary when talking about intermediaries. You wouldn’t refer to an investment house or a product provider in this way, Platform would be the most common term, if not totally correct in some cases. It’s real life v’s Google. Theory and what could happen against what really happens.

As I said a Trust structure does not need to be complicated. It can be with Tax Pools and credits, all the other calcs, but all that can be avoided.

The Trust simplification review and the relevant property trust rule changes mean tax in this area seem much less likely. Changes to tax to date has always been progressive and not retrospective, so I’d not be overly concerned on that front.

Putting money in Premium Bonds in kids names and not telling them about it will only work until they turn 16. At this point the parent's access is cancelled and can only be re-activated by the child themselves which can be a challenge for a kid who's never dealt with a bank and security before.

They will also tell neither the child nor the parent beforehand (or afterwards for that matter) that this is what is going to happen. If a parent forgets about it (don't think this only happens to rich people) the asset just 'disappears' from the portal and no-one may ever remember. I find some of these tactics highly questionable.

Rubbish and the rest of your posts.

You are an IFA selling products with no tax knowledge. Reading it from the Prudential or Legal & General's website really does not cut it.

You said: "As I said a Trust structure does not need to be complicated. It can be with Tax Pools and credits, all the other calcs, but all that can be avoided.
The Trust simplification review and the relevant property trust rule changes mean tax in this area seem much less likely."

You are just picking up phrases from the web to try to pretend you have tax knowledge about trusts. You did not mention the need to register investment bonds on HMRC's Trust Registration Service by 1 September. You did not mention that non-qualifying investment bonds are liable to income tax after 20 year or when they are cashed in if sooner at income tax rates up to 45%.

You are covered in bullshit.

And another thing:

"You hold an open architecture investment bond in a discretionary trust = no income, so no tax return. Allocate out to beneficiary to use their tax status."

If there is no income, as you put it, then what exactly are you allocating out to a beneficiary to use their tax status?

You really did make this up.

FFS this has turned into a ridiculous post. Don't bother with trusts it's just not worth it for the amounts involved and don't put it into bank accounts in the kids names or even earmarked for them because if you do the 18 year old can get their mitts on it.
Just put it into either Premium Bonds as already suggested or two separate Building Society accounts in your name and you release funds as and when you see fit.
Keep a note with your own will/financial papers if you feel the need, explaining where it has come from.

Yes she didn't leave will ,do they know about it /her wished?
If they do know just be vague and tell them it's in a complicated financial place.
They won't know!

If you are not able too you may have to dip into it to assist them anyway.

I would ear mark a couple of thousand to get them through to 25 ish.
Obviously the best time for them to have it would be when they get serious in life ...buy property,have DC.

Pb as pp said in your name is a great Idea.
Also perhaps ab ISA shift it over 20 at a time again in your name? Leave 5 in pb for assistance spending on them.

As and when they need it.

Look at a vanguard life strategy fund... perhaps one with more bond weighting than equities.
Now is a good time to invest as it's all so low.

Thanks all.

There was no will (and my sibling is not gifting their dc a penny) but I want to keep my mum's wishes and give my dc a share.

I suspect I will go down the premium bond route, in my name, with the 'it's complicated' explanation if they ask for the funds to prevent it being mis-spent.

My will needs updating as my mum was executor, but I will make a note in the paperwork that that is my wish for th PBs should anything happen before its updated.

Op, have you looked at lifetime isas? I do these for my kids. Strictly speaking they can withdraw the money but because it is earmarked for a house deposit, mine know it is 'untouchable'.
You invest £4k per year and the government tops it up by £1k a year. So your £25k would become £30k even before interest/dividends.
You could only do it for the 18 year old at the moment because they have to be 18+.
I keep the rest in premium bonds. It usually wins £25 a month so better than nothing.