Discretionary Trusts - are they worth it?
Discussion
My parents (being in their latter years) are making provisions for after they are gone and are concerned about inheritance tax issues and the such.
They have been looking at discretionary trust funds and the such and have someone coming to talk to them today about it. It is a company specialising in setting up such things but they are not sure that they are either value for money (as charging upwards of 2k for it) or indeed if it is something they need to think of.
Would someone be able to give a quick low down on what they are and if they are something that can be done without a third party company doing it, or is something the family solicitor can deal with.
I'd be very much grateful for some advice as it would be unfortunate for them to end up spending out on something if it is not necessary.
Thanks
They have been looking at discretionary trust funds and the such and have someone coming to talk to them today about it. It is a company specialising in setting up such things but they are not sure that they are either value for money (as charging upwards of 2k for it) or indeed if it is something they need to think of.
Would someone be able to give a quick low down on what they are and if they are something that can be done without a third party company doing it, or is something the family solicitor can deal with.
I'd be very much grateful for some advice as it would be unfortunate for them to end up spending out on something if it is not necessary.
Thanks
Wife and I have set up discretionary trusts in our wills for our son etc.
Hopefully another PHer will be able to tell you succinctly what they are and what they try and achieve.
I would advise you strongly to use a properly qualified solicitor. Don't try DIY and don't use anyone who says thay can do it for you if they are not a properly qualified solicitor.
Our fees for two wills, each with a discretionary trust, were around £800 total a couple of years ago.
R.
Hopefully another PHer will be able to tell you succinctly what they are and what they try and achieve.
I would advise you strongly to use a properly qualified solicitor. Don't try DIY and don't use anyone who says thay can do it for you if they are not a properly qualified solicitor.
Our fees for two wills, each with a discretionary trust, were around £800 total a couple of years ago.
R.
The Leaper said:
I would advise you strongly to use a properly qualified solicitor. Don't try DIY and don't use anyone who says thay can do it for you if they are not a properly qualified solicitor.
Definitely this. Also consider, if you have children, having some of your parents' estate go to a trust in your childrens' names rather than you.Have a look at the STEP website. What do you see? More important, what do you not see? Can you find any references to the members being qualified solicitors or barristers? No? Why not, you may wonder? What are the members? They seem to be professionals who have passed the STEP examinations, that's all. They also seem to be mostly accountants and similar. Interesting, isn't it, that the STEP members are promoting their trust capabilities without having a legal training? Why do members of the legal profession seemingly not want to participate in STEP?
All this is not to say that STEP is no good..it's just typical of good research and observations ahead of moving on to appoint any firm for any purpose. You may want to do something similar.
R.
All this is not to say that STEP is no good..it's just typical of good research and observations ahead of moving on to appoint any firm for any purpose. You may want to do something similar.
R.
Don't use a company for this. Too expensive. You need a solicitor or accountant.
Unless your parents are providing for your children, it's a bit pointless in your case. As long as they live another seven years, they can sign assets over to you now that will be free of Inheritance Tax when they die.
Unless Gordon the Goof changed the rules when I wasn't looking, of course.
Unless your parents are providing for your children, it's a bit pointless in your case. As long as they live another seven years, they can sign assets over to you now that will be free of Inheritance Tax when they die.
Unless Gordon the Goof changed the rules when I wasn't looking, of course.
This is exactly what I was thinking. Only had Internet access via my phone but will have a good look tonight. Just don't want them to get stung as my dad is a bit trusting when it comes to 'qualificatikbs'
Thank you
Thank you
The Leaper said:
Have a look at the STEP website. What do you see? More important, what do you not see? Can you find any references to the members being qualified solicitors or barristers? No? Why not, you may wonder? What are the members? They seem to be professionals who have passed the STEP examinations, that's all. They also seem to be mostly accountants and similar. Interesting, isn't it, that the STEP members are promoting their trust capabilities without having a legal training? Why do members of the legal profession seemingly not want to participate in STEP?
All this is not to say that STEP is no good..it's just typical of good research and observations ahead of moving on to appoint any firm for any purpose. You may want to do something similar.
R.
All this is not to say that STEP is no good..it's just typical of good research and observations ahead of moving on to appoint any firm for any purpose. You may want to do something similar.
R.
mybrainhurts said:
Don't use a company for this. Too expensive. You need a solicitor or accountant.
Unless your parents are providing for your children, it's a bit pointless in your case. As long as they live another seven years, they can sign assets over to you now that will be free of Inheritance Tax when they die.
Unless Gordon the Goof changed the rules when I wasn't looking, of course.
\Unless your parents are providing for your children, it's a bit pointless in your case. As long as they live another seven years, they can sign assets over to you now that will be free of Inheritance Tax when they die.
Unless Gordon the Goof changed the rules when I wasn't looking, of course.
^^^^Be very, very careful who your parents use. I myself attempted to use two firms, receiving conflicting advice, have now decided to follow the above advice, gifting to my children and hoping I either survive the 7 years, or there is no power cut whilst I am in the deep freezer.
often, not always but often, there are better ways of achieving the objectives people have in mind when they hear the word Trust
mybrainhurts outlines one of them: gift the assets and, as long as the giver lives 7 years, IHT is off the agenda
ime trusts often ending costing lots to set up and administer and can be hard to undo if circumstances change
unless very significant money / assets are involved (£5m+ I'd say), or if the recipients aren't capable of managing their own affairs reasonably, a Trust is more likely to NOT be the best solution.
Watch the fees and obligations to the firm offering to set up the Trust too, they can be harder to undo than the Trust!
mybrainhurts outlines one of them: gift the assets and, as long as the giver lives 7 years, IHT is off the agenda
ime trusts often ending costing lots to set up and administer and can be hard to undo if circumstances change
unless very significant money / assets are involved (£5m+ I'd say), or if the recipients aren't capable of managing their own affairs reasonably, a Trust is more likely to NOT be the best solution.
Watch the fees and obligations to the firm offering to set up the Trust too, they can be harder to undo than the Trust!
We've set up discretionary trusts for our life insurance payments, should we die before retirement or shortly after, plus anything else we later feel can be directed to the the trusts - subject to the letter of wishes they allow for payments to the surviving spouse anyway. The solicitor charged far, far less than you've been quoted. Essentially it's an off-the-shelf document tweaked for your circumstances, with a letter of wishes for each of you, given legal status by being done properly. Because it is fairly simple a non-partner / junior solicitor at £150-200 p.h. can offer a much better deal than you've been quoted and if you divide the cost by the likely timespan over which the trust needs to be extant it is modest. Obviously your parents need to have an estate larger than the IHT threshold to make it worthwhile.
ETA. DON'T let the company do the admin (part of the usualscam business model is that they'll fleece the trust with all sorts of costs). It should be straightforward and trusted family members [ETA not beneficiaries] can be tustees and do the needful - my understanding is that at simplest the payment is into the trust (outside IHT) and is then distributed according to your letter of wishes to the beneficiaries, when the trust can be wound up or runs on to its ?125 year end-date.
ETA. DON'T let the company do the admin (part of the usual
Edited by nomisesor on Wednesday 30th November 20:48
Edited by nomisesor on Thursday 1st December 08:51
Thank you for all your replies. My parents are all in knots now over fears if either of them go into care then the house will be taken off them... And that I'm going to be in the deep end with a huge tax bill... That they need lasting powers of attorneys etc..tenants in common... On top of the 3k are filing fees (about 800) and an annual charge of 200ish.. The company also won't let me be a trustee...
They then turn to me because I'm 'young and can use the internet easily' (shopping and ph mostly...) and are just so worried about everything.
Where would the best place be to go for sound and solid advice?
They then turn to me because I'm 'young and can use the internet easily' (shopping and ph mostly...) and are just so worried about everything.
Where would the best place be to go for sound and solid advice?
The Leaper said:
Wife and I have set up discretionary trusts in our wills for our son etc.
Hopefully another PHer will be able to tell you succinctly what they are and what they try and achieve.
I would advise you strongly to use a properly qualified solicitor. Don't try DIY and don't use anyone who says thay can do it for you if they are not a properly qualified solicitor.
Our fees for two wills, each with a discretionary trust, were around £800 total a couple of years ago.
R.
This.Hopefully another PHer will be able to tell you succinctly what they are and what they try and achieve.
I would advise you strongly to use a properly qualified solicitor. Don't try DIY and don't use anyone who says thay can do it for you if they are not a properly qualified solicitor.
Our fees for two wills, each with a discretionary trust, were around £800 total a couple of years ago.
R.
littlegreenfairy said:
Thank you for all your replies. My parents are all in knots now over fears if either of them go into care then the house will be taken off them... And that I'm going to be in the deep end with a huge tax bill... That they need lasting powers of attorneys etc..tenants in common... On top of the 3k are filing fees (about 800) and an annual charge of 200ish.. The company also won't let me be a trustee...
An enduring power of attorney is simple to set up and costs very little. It enables you to, for example, sign your parents' cheques, even if they've gone doolally. It must be set up while they're of sound mind, though.Regarding a trust, if you are the beneficiary, you can't be a trustee.
These things can be set up for far less than the fees you quote, unless solicitors' fees have gone through the roof recently.
You need a small solicitor's practice who specialises in this sort of stuff. There's one who used to be on Sharrow Vale Road called Watchorn...not sure how close you are to Sheffield now.
The solicitor can be a trustee. Often an accountant, too. The key is to use a small specialist. Avoid the big firms and definitely avoid that company you speak of.
You should find specialist solicitors in Yellow Pages. Then do a bit of searching and find out how big they are.
One thing to remember is that the trustees of a discretionary trust must act in accordance with your parent's wishes at the time it is set up but they can do whatever they want to do in that endeavour, which means they might not do what you want them to do. They hold the assets of the trust in trust for you. The trust can have a finite lifetime, at the end of which it is wound up and the assets pass into your possession.
However, I still can't see how this benefits you at the moment. It can be used as a vehicle to avoid tax on your death if it is set up with you as beneficiary, together with any future children. You would never own the assets, but could receive income from them during your lifetime. At your death, the assets could pass to your children, free of inheritance tax that would have arisen if you had owned the assets and left them to your children by will.
As I said earlier, I'm a bit rusty on tax and rules might have changed. One of those SMALL solicitors should give you free initial advice.
If your parents give you the house and anything else now, I believe government can still take them from you to pay for care.
Did I say avoid those companies? If so, I just said it again...
PS Power of Attorney - two main issues, health/welfare and money. These can be done DIY cheaply and effectively - it is like filling in a passport application - you just have to be careful to get it right.
http://www.direct.gov.uk/en/Governmentcitizensandr...
Trusts are not, IMO, DIY.
http://www.direct.gov.uk/en/Governmentcitizensandr...
Trusts are not, IMO, DIY.
nomisesor said:
PS Power of Attorney - two main issues, health/welfare and money. These can be done DIY cheaply and effectively - it is like filling in a passport application - you just have to be careful to get it right.
http://www.direct.gov.uk/en/Governmentcitizensandr...
Trusts are not, IMO, DIY.
There are no certainties with Trusts, whereas gifting in one's own life time is a sure thing that one's wishes will be carried out.http://www.direct.gov.uk/en/Governmentcitizensandr...
Trusts are not, IMO, DIY.
http://www.publicguardian.gov.uk/
There is nothing to prevent a beneficiary being a trustee!
There are many reasons why trusts are a good idea and also many why they are not. It is all about what you want to achieve.
For example, this is something you can do with a trust :
Have any death in service benefits, death benefits from pension schemes etc directed to a discretionary trust rather than your spouse. Default beneficiaries, the children, potential beneficiaries of course include the spouse.
On death, the trustees can lend the money to spouse so it can be used in any way needed and on spouses death, the loan is repaid from their estate back to the trust so it can go to the children. Benefit is no inheritance tax liability and spouse has had access to the money if needed.
Cost for such a trust? Depends on where you go, we provide it free to our clients.
There are many reasons why trusts are a good idea and also many why they are not. It is all about what you want to achieve.
For example, this is something you can do with a trust :
Have any death in service benefits, death benefits from pension schemes etc directed to a discretionary trust rather than your spouse. Default beneficiaries, the children, potential beneficiaries of course include the spouse.
On death, the trustees can lend the money to spouse so it can be used in any way needed and on spouses death, the loan is repaid from their estate back to the trust so it can go to the children. Benefit is no inheritance tax liability and spouse has had access to the money if needed.
Cost for such a trust? Depends on where you go, we provide it free to our clients.
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