Do you need to register a trust and set up a bank account

[AndyfromOxford]

Hi.
I have tried to get advice regarding whether a trust needs to be set up as per the instructions/wishes of my Father in-law. The estate is not massive, but my Father-in-law wished to set aside 1/3 of his estate into a discretionary trust - The beneficiaries are many, but primarily it is to ensure that his eldest(vulnerable individual 60) is supported as and when needed. The other 2 primary beneficiaries are his other son and daughter(my wife). The trustees can distribute this share with complete discretion. Question is.. Is there a need to set up a trust bank account and register a trust. Or could the balance of the estate be paid direct to one or both trustees, who could then support the dependent sibling - thus avoiding the administration/burden of maintaining a trust. The "dependent" sibling needs very little, as they receive state support etc and all their day-to-day needs are met. Equally, they are vulnerable and wouldn't want to be responsible for any material sum, say circa £50K as they could fall prey to scams etc.
Would welcome thoughts from anyone who has been left with a similar decision and avoided the need to set up a trust with "GOV.UK"!

Technically, if there ever was a dispute, it would be very clear that they did not follow the will.

In practice, there is no-one who polices this and if the vulnerable person does not pursue legal action, that will be the end of it.

Andy, discretionary trusts are quite complex from a tax perspective.

Also different taxation rules apply for vulnerable beneficiaries - so any money past to the vulnerable son can be taxed at his marginal rate which requires a special claim for overpaid tax to be repaid to him.

I strongly recommend that you seek professional legal advice on this.

Thank you for the advice. If the figures are (as expected small). I see it as a simple choice using an IFA to set up the funds/trust documents and access or simply have one of the siblings hold the funds
i tend to find these days that those of us who comply with every regulation often get penalised v those that take a pragmatic solution.
once big brother has insight often leads to more interest from authorities…
ultimately it is up to the siblings to decide
pragmatic v 100%compliance.
thanks again.

You do need to register a trust - link here: https://www.gov.uk/guidance/register-a-trust-as-a-trustee - as well as declaring it to HMRC for tax purposes. If one of the beneficiaries is legally defined as vulnerable, you need to register them as such - link here: https://www.gov.uk/trusts-taxes/trusts-for-vulnerable-people. You'll need to complete an SA900 tax return every year. You also need to keep detailed financial records of all income and expenditure.

I'd really suggest getting professional advice in setting the trust up, and doing the tax return going forward if you're not confident with finance and accounting. I'm financially literate but I had to pay an Accountant to do the first tax return and I learned how from that.

You can probably cut a few corners - I didn't know for a very long time that I had to register the trust as well as informing HMRC - but getting the tax wrong can be very expensive, and if anyone challenges your actions, not having followed the process and kept records will at best make it very difficult for you.

Disclaimer: I'm not a lawyer, accountant or financial advisor, just someone who's been there, done that.

Trusts are incredibly complex. If you don't get legal advice and go by the book, and in the future you are challenged on what the trust has done, the you could end up with a huge financial liability or a criminal record, or jail time, or all 3.

Legally you MUST register the trust on the HMRC trust portal. Then you must set up a trust bank account to manage the trust fund, and there must be at least 2 trustees signing off every transaction in order to protect the trustee.

@AndyfromOxford One major potential problem with one of the siblings simply holding the money is if they die unexpectedly the money will fall into their own Estate and therefore may end up further away from its actual intended beneficiaries.

I absolutely get your frustration of pragmatism v compliance (got something similar going on myself) but consider what the position of the vulnerable person might be if both trustees were to pre-decease the vulnerable person. At least with a properly administered Trust you could be more sure of continuity to protect the interests of the vulnerable person.