Anyone any knowledge of discretionary trusts?

[NigellaAwesome]

I’m not sure if this should be in investments or legal.

I am the executor of a relative’s will, one of the clauses of which was that a discretionary trust be set up for one of their DC. I am in the process of finalising probate, and I haven’t a clue how to set up the trust or what my advice should be to the recipient. There was no solicitor doing the probate, so I haven’t engaged one for advice on the trust yet.

I don’t want to be too outing, but the recipient is an adult, has capacity, but has long term physical disabilities and psychological issues which means they will never be able to work. They live in a housing association house (that does not meet their needs) and is a single parent to DC. There is no support from the other parent, financially or practically. I don’t know too much about their personal finances, but I think they are on UC and in receipt of higher PIP, housing benefit & child benefit. The amount of the trust will be just over £100k or so. The issue is slightly complicated in that the beneficiary of the trust can also be quite tricky to deal with.

My thoughts are that I need to discuss a number of potential options with the recipient and give them a bit of a steer, but tbh I’m not really very sure what my own thoughts on this are. I think my options are:

1. Purchase a property which meets their needs: I don’t think this is viable as the amount isn’t enough, they wouldn’t get a mortgage for the shortfall, and I think they are more secure in their albeit unsuitable housing association house. They wouldn’t have the ability or money to maintain the house.
2. Invest the capital, possibly in NS&I, and make the annual interest available to the beneficiary, which would be about £4k per year at current rates. This will protect the capital and provide a modest amount annually. I’m aware that this can’t be given to the beneficiary as cash as it could jeopardise benefits, but it could be used to buy items such as new appliances where needed, car repairs, school uniforms etc.
3. Hold the trust in a bank account and make monies available as & when requested. I’m not keen on this option as it will erode the capital. The individual is in their mid-40’s so I need to consider the next 30 years or so at least.
4. Some other idea I haven’t thought about?

So questions I have - do I need to open a separate bank account to manage the trust? (I would prefer to keep it separate to my own finances) If so, in whose name is it opened? Can you open a bank account in the name of the trust?

How much day to day involvement in spending decisions does the trustee need to have? As I said, the beneficiary can be tricky to deal with and they are likely to resent any perception of loss of autonomy / interference.

Do annual accounts need to be prepared / receipts kept?

I’m really at a loss as to where to even begin with this. I am at the stage where I will soon be dispersing monies to the other beneficiaries of the will, and I will need to have a discussion with the beneficiary of the trust.

Any advice from anyone with experience would be really appreciated.

God what a nightmare. I’m a trustee for a dis trust and it’s a pita! But I’m in a much easier position than you as I know exactly what the person who set it up wanted to achieve. Do you have any guidance at all? Are you the sole trustee?

I am a tax advisor and see trusts every day - I would say it really is best to take advice from a professional in the first instance.

If you’re totally at a loss try to contact the solicitor who wrote the trust deed to learn what you can about the intent behind it. There should really be three trustees on a disc trust.

You will definitely need to keep it separate from your own money. Currently Skipton bs and metro bank are the only U.K. based trust bank accounts without paying for private banking. They’ll want id from the beneficiary and you but it’s not too painful.

You need to speak to a solicitor. It is complicated. Sometimes heirs with disabilities losse their whole state care package if they inherit and it may in some cases even be wise for all the heirs to agree to change a will (this is lawful if everyone agrees). I would go to see a solicitor about it

It very much depends on the wording of the will but you generally don't need to set up a separate trust - this is called a "will trust" and the will itself acts as the trust deeds.
This is not investment advice
The objective of the trust will determine how the funds should be invested, which should also be outlined in the will. If income is to be provided to the beneficiary then a savings accounts is probably not appropriate. But you should contact a wealth manager who deals with trusts for investment advice for the specific size and circumstances. I will DM you a firm.

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It is probably best that you consult a solicitor to check the precise terms of the discretionary trust set up in the will. The idea is that as the beneficiary does not have any right to income or assets, it should not impact on their benefits.

For your own protection, please ensure there are at least two trustees.

A pp above suggested going to an investment advisor - I would personally prefer to take advice from an independent professional. Tax returns will need to be submitted so you are going to probably need an accountant or a lawyer to help.

There is more information here: www.thegazette.co.uk/all-notices/content/104108

Thanks so much for your replies.

There is another trustee (the other executor) but they are even more clueless than I am. I am aware of the intent behind the trust as I was present when the will was made. I think the concern was that if they inherited, they would lose all benefits and support, and that in a matter of years all the capital would be gone with no long term support. The solicitor at the time talked about buying things for the beneficiary as required to improve their standard of living.

I did not know about the tax return - that is very interesting and useful (and an absolute pain). Also thanks for the names of banks - good to know.

The overwhelming message is that I need to speak to a professional about it.

You can set up a discretionary trust with Barclays Bank ( via their Wealth dept ) .

Hi OP I suggest looking for legal advice ftom solicitors who specialise in trusts for disabled and/or vulnerable people such as this firm
www.renaissancelegal.co.uk/

Nigella, interesting as that is what I posted - the impact of inheritance on state disability/care packages.

The trust is already set up by the will so she doesn't need anyone to set it up for her.

It sounds to me like you understand most of what is required. Buying things that are needed rather than providing an income is very sensible and will ensure the support is there for longer.

I would suggest that a local accountant would probably be better and cheaper for help with HMRC etc than a solicitor. Just make sure they have some experience in this area. In my experience, accountants are better at dealing with money and doing tax returns than solicitors! I don't think you need much more in the way of advice so an accountant can provide everything you need.

We had to do this for my brother, we sought advise from an IFA, they were able to sort it all out on our behalf I had to set up an account with HMRC for any tax implications, but they helped me all the way.

You need to speak to a financial advisor who has experience of dealing with these. Different circumstances but we have this set up for dsd if she outlived us. It's complicated but essential

Chartered Tax Advisor here, I actually work predominantly with IHT/trusts within the private client sphere. The below isn't exhaustive, it's just some initial thoughts so best to contact an IFA (who has a good understanding of trusts and a good connection with a tax advisor if needed).

The trust is set up by the Will, that governs how the trust is run. As discretionary trustees, you have the discretion to make payments to the beneficiary as you wish and in whatever form. You have a fiduciary duty to the beneficiary, so you can take into account that large sums of cash could affect their benefits and therefore not make some distributions. You should be aware there are tax consequences for making distributions of income to beneficiaries, which involve the trust paying tax (predominantly at 45% of income, or slightly lower if dividends) so would need to file a tax return. The distribution to the beneficiary comes with a 45% tax credit, so they can claim back any additional tax paid by the trust which exceeds their tax liability. For example, if you distributed £4k to them and they had no other income, there would be no tax due to personal allowance. They would then be able to reclaim the tax paid by the trust from HMRC (c.£1.8k). You can do this via R40 form if they don't need to report other income (although I appreciate some benefits are taxable). Distributions of capital shouldn't have any tax consequences, although depends on whether the deceased made chargeable transfers in prior seven years from death.

You also have requirements to register for Trust Registration Service.

You can set up a bank account to hold the funds, but I know it can be a PITA to get one. I believe HSBC and Barclays do them, but I'm not sure how easy they are to get set up. If you are investing 100k with them it might sweeten the deal.

I don't think you need a tax advisor realistically as an IFA should be comfortable with the basics of tax that would arise on 100k. If a tax advisor would sit down with you and charge a few hundred pounds though for an initial meeting to give you some knowledge, that might be money well spent and could give you some comfort.

Awesome. Thank you so much.

Please be aware that most IFAs will take a commission on investment as that is how they make their money. As it is a relatively small amount, if you very sensibly just want to put the money in NS&I, then I wouldn't go that route. A couple of hours advice as a one off from a local Chartered Accountant with some experience in trust work is probably all you need. Most of them will offer the first meeting for free anyway.

Hi Alarae,
I just come here to see if I could get help with discretionary trust queries,
I am a trustee and am so confused with taxes and registration and all sorts, don’t suppose you are free to book an appointment with?!!

If this helps, I am a trustee of a discretionary trust, and although I don’t know what I’m doing, I was helped by a trustee accounts specialist that helped me open up a bank account to put the trust funds in. The name of the company was Simpson financial services limited. She will ask for all your details and fill out all the paperwork on your behalf, she definitely comes highly recommended by myself. Like you, the job as a trustee seemed to have been thrown upon me, without much knowledge of what is required. I really hope this info can be of use to you.