Discretionary Trusts for my kids - where to start ?

[Planetmonster]

GPs willing to put some money in for the kids for when they reach 25.

I think this is called a Discretionary Trust. I want the money in index tracker funds so it doesn't lose money through inflation. What do I need to set one up? So far I think :

Solicitor to set up the Discretionary Trust
Hargraves and Lansdown accounts for the fund tracker in the name of the fund.
Register with HMRC.
Maybe accounts yearly.

Does anyone do all this as a one shop stop, seems PAINFUL.

Anything else I should think of?

Tax payable by the trust annually, mostly at highest possible rates. Depending on value of trust (and some other variables) - IHT returns and possible inheritance tax payments every 10 years. Forms R185 if children benefit from trust, form R40 (or tax return) for each child if an income distribution is received.

depending on values and the reason for the trust it may be worth doing. Sometimes it’s worth considering going for offshore bonds as trust investments instead. That means the annual tax reporting requirement goes away.

not every accountant deals with trusts so if you need help managing it, worth asking around for their experience in trusts and the fees they charge. Sometimes the lawyers may do the ongoing accounting/tax but that’s not certain.

You could use a bond to reduce the tax burden.

I’d not want open ended funds unless the amount is high.

The taxation of trusts is a minefield for Joe Public, if you are talking about large amounts I would speak to a financial advisers.

In my experience it’s also a minefield for accountants. Very few understand them. Start talking tax pools and you lose them.

The trusts we administer have a minimum fee of £10,000 annually and looking at assets over £1Million.

50k each trust. I think it is going to be an arse but otherwise won’t get the money. Therefore I think gains will be minimal and therefore not much tax implications for the kids as they are over 15 now.

will look up the forms thanks !

how on earth would you choose an offshore bond ?

Discretionary trust are taxed on the trustees with half the available nil rate bands (mostly, but different scenarios are available)

Why not just buy a Gilt corresponding with the year they will get it?

@BorgQueen coz despite working in the city I am clueless. Where would one begin choosing a gilt with the right length on it ?

Ok, try this site
https://www.ajbell.co.uk/our-services/investment-options/gilts/prices

Look for the year/ years you want them to mature and buy them in an ISA.
For example one maturing in 10 years gives 4.25% interest ( coupon) yearly, you need to invest the coupon too, a short term money market fund is available in an ISA , they pay the overnight bank rate.

You select the maturity date

@BorgQueen and @DingDingRound3 right had a look.

Questions - if parents by the gilt in junior ISA then I assume then can only invest 9k a year in it? But I guess we could set up now and put in 9k for the next five years.

But If I buy the gilt in a dealing account in the name of my child then they get access at 18?

Damn I thought this would be easy !

If you put it in a JISA, that’s not a Discretionary trust and so you can buy anything - most of which is likely more suitable than a Gilt.

If you’re then not using a DT, you may as well use a Bare Trust and get it all invested.

You can’t ’JISA’ a DT, a DT is a standalone, taxed individual legal entity with its own tax code.

What are the grandparents actually saying? Why do they need it to go into a discretionary trust?

£50k isn’t really the sort of money that most would bother using a discretionary trust.

Set up a joint GIA with your child; Or GPs set up a joint one with GCs. Withdrawals are not permitted without the consent of all parties. On the death of one holder all the assets automatically pass to the others.
(There are tax implications to explore on income and capital gains).

Are you sure you can have a joint GIA? I’ve only ever found one with a spouse. Which providers?

I think you may need to find out about the taxation of discretionary trusts enough to convince the grandparents that it isn't worth insisting on a trust nowadays.

My mother hopes to leave a comparable amount to each of her grandchildren in her will (lifespan and future care needs allowing!). She initially wanted to write it as in trust till age 30. I said, can you get some advice about taxation first please? She's now feeling more comfortable leaving it to them with the less restrictive guidance "to be invested under supervision till age 30" or somesuch similar phrase. General idea being that they can use it for a house deposit or in some other meaningful way, once they are beginning to be more settled in life and know what they need.

Good luck figuring out the right route; I suspect jISA with remainder into an adult ISA at 18 will be the way to go, and learning together with them how to invest it effectively.

Ok so I am thinking her are my options:

Keep the Discretionary trust idea but a faff.
Buy a 10 year gilt (! No clue about this!)
My parent give me the money and I feed it into Junior ISAs / ISAs - but available at 18.
My parents put it into SIPPs.
My patents give it to me, and I give to kids at 25 but that has tax implications for me as I am a higher rate tax holder.
My parents set up a joint General Investment Account (GIA) with them and the kids, but for a GIA you have to be over 18, but oldest will be.
30k in Premium Bonds.

who thought a nice thing would be so tricky.

Or you set up a Bare Trust

Gilts don't really solve the problem as they can just be sold.

Agree that the costs of a discretionary trust mean it's not worth it for the sums involved. Honestly I'd just use the JISA and help them with the transition at 18 by explaining that the money is intended for the future and would be best left in the tracker until they are a bit older, which is what their GPs intended. (It also leaves open the possibility of the money going towards uni costs, which might not be the worst thing in the world.)

@Birdist and @LuckyOrMaybe you sound knowledgable about discretionary trusts - may I ask, if a grandparent wishes to put £80k in a discretionary trust for upcoming school fees (say £10k to be drawn down 2028-2034), is there any drawback to this? I’ve heard I might be taxed and that there are significant annual fees to run the trust?

How did you get on with yours @Planetmonster?

I gave up ! The trust seemed a lot of work for the ‘small’ amount of money.

in the end I am going to set up a General investment account in my name and suck up the taxes

Your plan is not a good idea. Instead of trying to DIY trying to save a bit of money you will cost yourself a lot more in taxes, not only will you have to pay tax on your dividends and complete a tax return each year, you also need to be mindful of Capital Gains Tax also. You also appear to have no investment knowledge. This is definitely one where you should get professional advice from a financial adviser.

My DC and many others got a CTF with about £250 when they were born from the government at the time

We like many others transferred it over to another CTF of our choice.

Once my DC hit 18 they could access the amount and keep the CTF but no more contributions can be made unless it converts to a normal ISA.

One DC has taken the money and chosen to invest it as they please. The other DC has just left it as is for now to do its thing. Neither has used it to go on a crazed spending spree. Like me they just like knowing it’s there. Both their CTF did exceptionally well.

It’s an easy option if you’re just not sure where to put the funds and it will be in their names.