- I don't think there is any IHT benefit in transferring assets from one trust to another, as the assets will be subject to the 10 year IHT payment as if they were still in the first trust(IHTA 1984,s81 apparently). There would be IHT relief of course on any other assets you added, and of course the extra CGT benefits.
- As the widow/widower of a settlor you can be a beneficiary. Don't forget to add that to the list of beneficiaries of any new trust.
S81 is as follows:
81(1) Where property which ceases to be comprised in one settlement becomes comprised in another then, unless in the meantime any person becomes beneficially entitled to the property (and not merely to an interest in possession in the property), it shall for the purposes of this Chapter be treated as remaining comprised in the first settlement.
I am in agreement that a transfer of assets from one trust into 2 new trusts would achieve nothing. It is therefore my plan to make distributions from my father’s Trust and pay the exit charges and therefore the property then belongs to the individual beneficiaries, who can then set up new Trusts. At least that is my understanding. In my particular situation I can get the first £250k out of my father’s trust with no CGT as there are a number of shares with capital losses and another number with small capital gains. Regrettably (from a tax point of view), the largest two holdings in the Trust have considerable capital gains and selling them would result in a considerable drop in dividends if re-invested in similar shares. These I will just leave in the Trust unless the share price gets so high I become a seller regardless of the tax consequences)
The widow/widower not being a beneficiary is one of the things putting my decision off for say 5 years as by then I will be 5 years older and more able to determine how much wealth can be irrevocably “given away”. I suspect in practice I will end up with some sort of phased approach.
Howard wrote:Any comments by other posters on the practicalities of running a Discretionary Trust would be welcome. The key question: is it worth the hassle?
Following your initial post, I pursued the idea of setting up a discretionary trust with two wealth managers and, whilst they were both encouraging, their charges look very expensive to me as a “DIY” investor. Typically 1.5% to set up a trust and over 2% to manage it every year. Assuming it is designed to last around 15 years and will appreciate, the total charges overall in £ terms would be eye-watering!
A solicitor I consulted would set up a trust for around £1.7k incl vat and one of the stockbrokers I use would enable me to manage the investments for a similar modest cost to running an ISA or Sipp.
It would be relatively easy to select an investment portfolio aimed at capital growth but the issue which is making me wonder about this route is the tax reporting and administration, especially when making payments to the beneficiaries. The aim would be to provide capital sums to the grandchildren at age around 25. These would be fairly hefty amounts which could, for example, go towards a house-purchase.
There are no fees from HL for Trusts. But as with all brokers you will require an LEI at around £75 per annum
I am with you on the do it yourself approach to investing. As far as I could tell the IFA I saw took a percentage and then gave the money to 7IM (Seven Investment Management) who take a percentage who then invests in Investment Trusts (many of which are popular on TLF) who also take a percentage. If that's the route you want to take the top 10 holdings of 7IM are available for each of their funds, so you might as well do it yourself. (although noting do it yourself won't give you gearing which improves the IT's performance and you won't be actively managing the percentage in each trust on a daily basis)
I pay an accoutant to do the tax at £450 per annum which includes the tax return and the forms for the beneficiaries. The 10 year calculation is extra as are the forms for capital distributions. I have been offered cheaper quotes. I have also been offered a "full service" which covers all the admin and governance and tax returns for £750 per annum.
I pay an accountant as it helps me sleep at night but after 22 years I've learnt quite a lot and I'm considering doing it myself. Maybe that's a route you could take. Pay an accountant for the first 5 years and then review.
Finally returning to your question around is a discretionary trust worth it, I think my view is the following. If you trust your children and granchildren to be financial sensible and respectful of the money you are investing for them, then it would be far easier and probably more tax efficient to simply to give it away now and load up their ISAs/JISAs/LISAs. Of course at 18 the grandchildren can access the money and before then the parents could also plunder the grandchildren's accounts.
LISAs are best as they can only plunder them for a house purchase without giving up the 20% tax benefit and that's probably what you are giving them the money for anyway.