Talk me through a Discretionary Trust

[JamMakingWannaBe]

I have a Life Insurance policy which will pay out £115k (rises with inflation) if I die before I'm 60. I'm 42.

I've been doing some financial planning and I don't think it's held in Trust.

My Estate is maybe £200k in property plus £15k in shares/investments so for Inheritance Tax I don't currently NEED it to be in Trust. I've done some reading and if I put it into Trust (not sure why I didn't when I took it out in 2014) and then die within 7 years it counts for IHT anyway.

Despite this, I've been looking at putting it in a Discretionary Trust. I ideally want a % to be held for DD til she comes of age and a monthly income to be paid to DP. Is this possible or just a complete PITA for the Trustees to administer?

Can someone take me through step by step what is involved, what happens when I die and the potential tax implications.

Is it easier to give it all to DP and trust him not to piss it up the wall to deal with it responsibly?

It should be in trust for a number of reasons, not least not waiting for probate.

My Estate is maybe £200k in property plus £15k in shares/investments so for Inheritance Tax I don't currently NEED it to be in Trust. I've done some reading and if I put it into Trust (not sure why I didn't when I took it out in 2014) and then die within 7 years it counts for IHT anyway

That’s not correct. A policy has no value except the premiums paid (which are below gifting levels) so that won’t apply here.

Is your DP the father of your DD?

Thank you. That's really helpful.

Yes, DP is DD's father.

I'm now considering a bare/absolute trust with 10% to DD (inheritance seems to be passed on at 16 in Scotland) and 90% to DP. I'll just have to hope DP spends it wisely. Held in Trust it doesn't need to wait for probate.

I'm actually more fussed about my final resting place and the wool coffin I'd like so I'm concentrating on my letter of wishes and thinking I've done enough to ensure DP and DD have enough to support themselves if I die prematurely.

One thing to remember about an absolute trust is that the beneficiaries or amounts they receive CANNOT be changed in the future so if you have a change of circumstances eg divorce, more kids, any reasons really where you would want to add remove or change the beneficiary shares, you wouldn’t be able to.

It may seem unlikely but speaking from experience here. Late FIL had policy in absolute trust for his partner. They split up and even though he passed a few years later and we had to tell her to stay away from the family and not come to the funeral, she still received the proceeds of the policy.