Discretionary Trust query

[LittlePearl]

In 1997 my aunt set up a Discretionary Trust for her house. The trustees are me, my aunt and her solicitor, and the (main) beneficiaries are me and my two sisters.

Aunt's now approaching 90 and is thinking about her future. If she needs to go into care she wants to sell the house and dissolve the trust. She will need some money from the house sale to top up her pension income for care fees but after that she wants my sisters and I to share the rest.

I'm assuming I will need to pay tax on my share - is that right? I've tried checking online but am struggling with the details. I had an hour long conversation with the solicitor earlier this week to discuss various aspects of the trust but forgot to ask.

Thanks in advance for any help.

Can I ask what the original purpose of the Trust was? Did she not expect to live as long?

Was the purpose of the discretionary trust to avoid IHT?

Any idea why your Aunt choose to set up a discretionary trust originally for her house? We have one in place for an family member who has assets but a history of running into debt, but I suppose reasons vary. Not sure what the IHT tax thresholds urgently currently are....quite high I think 650K comes to mind? But this is normally paid out of the remaining estate, not by you.

Just to make sure I understand - she's going to dissolve the trust sell the house and then gift you some of the remaining value? So there will be no trust involved anymore?
The tax position is different if there is a trust still involved.

If you are receiving a gift direct from her then there will be no tax to pay. There may be a tax liability on her death if she dies within 7 years but that will depend on the value of the entire estate. You would be liable to pay any tax due on the value of the gift when you received it. Whether you pay tax will also depend on whether she has made gifts in the 7 years before as well.

I'm surprised that the trust can be dissolved, would really like to know more about that ( for my own research and study)

Thanks for the replies, and sorry for the delay in responding to questions.

The house is my dad and aunt's childhood home. Aunt never moved out and lived there with her parents (my grandparents) until they died. She inherited the house and my dad got nothing so I think the trust was her way of trying to be fair to him.

I honestly don't know if it was an attempt to avoid IHT. We've almost never discussed it to be honest, but lately she has started talking about what would happen if she needs to go into care, hence my conversation with the solicitor.

Perhaps the expression 'dissolve the trust' was inaccurate - not sure what the terminology would be. Solicitor thinks the most sensible thing for everyone concerned would be to sell the house (if / when aunt needs residential care), set some aside for aunt and split the rest between me and my sisters. I assume at that point the trust is no longer needed? (Sorry, this is SO not my area of expertise!)

Thank you for replying - I'm studying for a tax and trust exam so I was intrigued about a trust being dissolved, when you create the trust you transfer the legal ownership of the property to the trustees so I hadn't heard of one being dissolved but trust law is so complex anything can happen!
I would definitely suggest you and your family talk to a tax specialist - your solicitor can probably recommend one, there could be more tax implications for your aunt/the trust/ the estate

Hi OP, we've moved this to our Legal section.

If your aunt has already established the trust, so that the trust owned her house and is not herself a beneficiary, I'm not sure how she can now benefit from the trust

Perhaps the trust was to be set up in her will, so that she can change her will.

Tricky things, trusts. Specialist advice is the way to go.

Thanks again all.

It's clearly a more complicated situation than I realised. I'll go back to the solicitor and ask her to recommend a tax specialist.