Can a discretionary trust create a bare loan trust?

[marc02]

The purpose being that the discretionary trust will allow the funds to be removed from the settlor estate, for the benefit of the beneficiary.

If left in the discretionary trust, income would taxed on the trust and then the beneficiary could claim back a credit. To avoid the administrative process, it would be easier if the beneficiary dealt directly with their taxes, without having to involve the discretionary trust, therefore the discretionary trust loans interest free the funds to a bare trust.

The discretionary trust helps with the IHT by removing the funds from the settlors estate.

The loan insures that the discretionary trust still owns the fund albeit owns the loan.

The beneficiary has absolute entitlement to the income and manages their own tax affairs.

Where the beneficiary no longer requires the income, the discretionary trust can recall the loan and then make the funds available to a contingent beneficiary.

Is this possible? Would it a matter of setting up the two trusts?

[bd6759]

Granting a loan does not createa bare trust!

[AGoodman]

As mentioned above, I don't see the need for the bare trust.

The settlor gifts to the discretionary trust (from which they are presumably excluded) and the trustees can then lend the funds interest free to the beneficiary.

If you did want a separate bare trust, perhaps so that the funds could be managed on behalf of the beneficiary, this should be possible as well, but the trustees of the bare trust would be at risk if the value of the investments were to fall below the value of the loan.

You would also need to consider self-dealing rules if the trustees of the two trusts overlapped (the self dealing rule would prevent a trustee lending to himself in another capacity if the rule were not excluded in the trust deed).

[marc02]

thank you