Discretionary family trust
Discussion
Say I have a business asset that will pay out seven figures in maybe five years time. And let's also say I don't expect I will need it, nor does my ex, who owns half, but we can't be certain. Both of us would expect to make it available for the children, but maybe not all of it. Can we put this asset into a discretionary trust, of which we are both trustees, and we determine jointly how to use it when it becomes available in 3-5y? Or is there a better way of doing this?
This surprised me on FICs - https://amp.ft.com/content/92c0d3a7-33c9-4545-b125...
BobToc said:
This surprised me on FICs - https://amp.ft.com/content/92c0d3a7-33c9-4545-b125...
Unfortunately I don't have a sub, what does it say?PugwasHDJ80 said:
BobToc said:
This surprised me on FICs - https://amp.ft.com/content/92c0d3a7-33c9-4545-b125...
Unfortunately I don't have a sub, what does it say?A couple of wealth managers have publicised it on their websites as well.
https://www.kingsleynapley.co.uk/insights/blogs/pr...
SpartacusF said:
Say I have a business asset that will pay out seven figures in maybe five years time. And let's also say I don't expect I will need it, nor does my ex, who owns half, but we can't be certain. Both of us would expect to make it available for the children, but maybe not all of it. Can we put this asset into a discretionary trust, of which we are both trustees, and we determine jointly how to use it when it becomes available in 3-5y? Or is there a better way of doing this?
You could almost certainly do it, but take a long hard look (and professional advice) on the tax implications (especially CGT and IHT charges if the value is over certain limits) if the business asset already has value. Similarly given rules around settlors/grantors/beneficiaries, "don't expect I will need it" makes it more complex than "definitely" won't need it. Again that's one to run past a professional advisor who may steer you down the route of two trusts (one for each of you) and make sure the beneficiary classes work well.
PugwasHDJ80 said:
Consider a family investment company
If you genuinely don't need the cash then they can be very tax efficient from a number of perspectives whilst allows Ng a lot of flexibility.
FICs can be very attractive and open up many options but are not exactly cheap to set up or run and things can get even more expensive if you have children under 18 (who can't therefore hold shares directly themselves) and/or you want to retain a degree of control. Due to the costs involved I'm not sure I'd consider one unless the intention was to tie up a decent sum for an extended period and had a plan about how to make it grow.If you genuinely don't need the cash then they can be very tax efficient from a number of perspectives whilst allows Ng a lot of flexibility.
You can do some pretty clever stuff in hybrid structures that involve both trusts and FICs but you're looking at hefty fees (well into 5-figures) if you get proper firms involved (which you should do as the whole thing needs to hang together from both tax and legal perspectives).
Do you use a good law or accountancy firm? If so, it's the sort of thing that I'd start by having a chat with them to see if they have experience of FICs and can recommend complementary professionals who also have experience.
LooneyTunes said:
PugwasHDJ80 said:
Consider a family investment company
If you genuinely don't need the cash then they can be very tax efficient from a number of perspectives whilst allows Ng a lot of flexibility.
FICs can be very attractive and open up many options but are not exactly cheap to set up or run and things can get even more expensive if you have children under 18 (who can't therefore hold shares directly themselves) and/or you want to retain a degree of control. Due to the costs involved I'm not sure I'd consider one unless the intention was to tie up a decent sum for an extended period and had a plan about how to make it grow.If you genuinely don't need the cash then they can be very tax efficient from a number of perspectives whilst allows Ng a lot of flexibility.
PugwasHDJ80 said:
LooneyTunes said:
PugwasHDJ80 said:
Consider a family investment company
If you genuinely don't need the cash then they can be very tax efficient from a number of perspectives whilst allows Ng a lot of flexibility.
FICs can be very attractive and open up many options but are not exactly cheap to set up or run and things can get even more expensive if you have children under 18 (who can't therefore hold shares directly themselves) and/or you want to retain a degree of control. Due to the costs involved I'm not sure I'd consider one unless the intention was to tie up a decent sum for an extended period and had a plan about how to make it grow.If you genuinely don't need the cash then they can be very tax efficient from a number of perspectives whilst allows Ng a lot of flexibility.
LooneyTunes said:
All depends on circumstances, how he's already structured, age of children, level of control he wants, Ltd vs Unlimited for the FIC, the list goes on... there's likely to be a trade off however he does it, but he's likely to fail to maximise the FIC's potential without proper advice and that's most unlikely to be free!
That's trueThe FIC route gives us the flexibility, but the tax issue is worth triple checking. The asset is in the form of loan notes arising from selling my company to PE, with CGT already paid on the original sale. They will only be repaid when the new company is sold again.
Absolutely loud and clear regarding advice - am on it. There are a myriad of family office/private wealth outfits out there advertising to help, all in Mayfair, curiously. I do feel slightly conned by the private wealth lot claiming cost effectiveness when they clearly don't practise it themselves. Is there a recognised expert provider, legal plus financial advisory, in this field with a 'sensible' fee structure?
Absolutely loud and clear regarding advice - am on it. There are a myriad of family office/private wealth outfits out there advertising to help, all in Mayfair, curiously. I do feel slightly conned by the private wealth lot claiming cost effectiveness when they clearly don't practise it themselves. Is there a recognised expert provider, legal plus financial advisory, in this field with a 'sensible' fee structure?
Would prefer not to give a specific recommendation but if you have an existing relationship with a good law firm with a Private Client team or a solid accounting firm then they will be able to help. I’d go that route instead of one of the WMs unless you are drawn towards a specific wealth manager’s broader offering (as frankly I’d question whether they’d add much to the process otherwise).
Doesn’t need to be Magic Circle/Silver Circle or big-4 level (although these can do it) but one man bands almost certainly won’t have done it before and you do need to box off both legal (corporate, tax, and possibly trust) as well as accounting. Basically go with a firm you trust and who is going to care enough about the work.
Depending on the LN, if CGT is sorted, it might actually be something that doesn’t need to be sorted until the money arrives?
Doesn’t need to be Magic Circle/Silver Circle or big-4 level (although these can do it) but one man bands almost certainly won’t have done it before and you do need to box off both legal (corporate, tax, and possibly trust) as well as accounting. Basically go with a firm you trust and who is going to care enough about the work.
Depending on the LN, if CGT is sorted, it might actually be something that doesn’t need to be sorted until the money arrives?
SpartacusF said:
The FIC route gives us the flexibility, but the tax issue is worth triple checking. The asset is in the form of loan notes arising from selling my company to PE, with CGT already paid on the original sale. They will only be repaid when the new company is sold again.
Absolutely loud and clear regarding advice - am on it. There are a myriad of family office/private wealth outfits out there advertising to help, all in Mayfair, curiously. I do feel slightly conned by the private wealth lot claiming cost effectiveness when they clearly don't practise it themselves. Is there a recognised expert provider, legal plus financial advisory, in this field with a 'sensible' fee structure?
Spartacus, for what its worth, I founded a CF/M&A house in the mid market- our "go-to" for proper independent tax advice is Claritas Tax. Absolutely loud and clear regarding advice - am on it. There are a myriad of family office/private wealth outfits out there advertising to help, all in Mayfair, curiously. I do feel slightly conned by the private wealth lot claiming cost effectiveness when they clearly don't practise it themselves. Is there a recognised expert provider, legal plus financial advisory, in this field with a 'sensible' fee structure?
Who did you use for the legals on the main transaction? they should have a sensible tax team if they were advising on a PE transaction.
Are the loan notes QCBs or not?
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