Discretionary Trust Advice

[confuseddex]

Just wondering if anyone might be able to give us some advice about a discretionary trust our father setup about 8 years ago. As 7 years have now past since the final deposit into the trust (a mixture of money from our fathers income and then lump sum from sale of family home) we are at the point where we need to discuss and decide what we should do with the trust.

There are 3 trustee's including myself, my sister and our mother. My father is now quite elderly and suffers from dementia so is no longer a trustee and doesn't want any involvement in the trust.

The beneficiaries of the trust are my sister, her two children and myself (and any children I may have in the future).

We have discussed a few options that could work for all but as we don't really understand trusts, what could be done within them or what the tax implications could be we are a little confused! I am sure when the trust was first setup the rules and tax around it was less complex as it is now (guess the IR have closed some loopholes!).

The trust is currently valued at around £600k, both my sister and myself withdrew £25k a few years ago which fell within the 5% allowance on deposits.

What we think we would like to do is this:

1) Wrap up the trust , paying all tax liabilities.
2) The amount left after all taxes have been paid be split so that my sister and myself get 25% each and the remaining 50% be placed in another trust/bond or any other suitable investment.
3) My sister and myself will then become Trustee's of this trust / investment and the beneficiaries will be my sisters children and any children I might have in the future during the lifetime of the trust.

While we were talking about this quite a few questions arose:

1) Approximately what amount of tax will we have to pay on settling the trust and would there be any other tax liability on the 25% my sister and I will potentially receive? Looked into it myself but seemed very complicated to work out......?
2) Are there more efficient trusts and/or investments that might be more suitable for the possible new trust? I know discretionary trusts are not as useful as they once were.
3)Would we be better to keep the existing trust and just take out 50% and change the trustee's and beneficiaries? How would we work out the tax side so that effectively it is being split fairly?
4) Is there any better advice anyone could give?

I know a lot of people may say to leave the trust as it is, however, I would like to buy a house in the near future and this is the only way I could ever get a deposit together. In addition with recent failings in the financial sector I am not 100% confident that investments are the best place for our families nest egg for the future.

Any help that anyone can provide will be gratefully received.

Thanks in advance

[tax_schmax]

In short, you should probably keep this trust and take what you and your sister want. You can probably take loans from the trust which can help reduce taxes.

The trust itself does not "perform". The assets inside the trust do. Once you and your sister have taken whatever you need, the residual assets in the trust can be altered in almost any way. You can make any "prudent" investment for the benefit of the remaining beneficiaries.

The taxes you face upon winding the trust up are going to depend upon the assets inside and the way you chose to close the trust down , if you still wish to go down that route. Discretionary trusts are effectively higher rate taxpayers. If neither you or your sister are, you can have the assets assigned to you from the trust so that the tax liabilities become your own if you would pay less tax than the trust.

There are many things to consider and based on the very rudimentary reply I have just offered, you should see the need for proper "sit down" advice. The trust should be able to meet this cost as it would appear that taking advice could save all the beneficiaries a lot of money in the end.

[confuseddex]

Firstly apologies for not replying sooner.

Thank you for the advice and I think you are right we will need to get professional face to face advice on the best options for all on this situation.

Very confusing area that I for one can't really get my head around.

Thanks again for your advice.