Will a discretionary trust be wound up on death of Settlor?

[lizgreen333]

In May 2011 my mother passed £325K into a Discretionary Trust for the purposes of removing it from her estate , should she survive 7 years.
The money purchased a bond, held in the trust.
We had a financial adviser from Hargreaves Lansdowne managing this for us.
(in fact there are two identical bonds and two trust deeds and they are split £200K and £125 but my questions are the same).

Sadly mother has recently been given a terminal diagnosis and looks likely not to survive the 7 years (which would be May 2018).
I am a beneficiary and also a Trustee. And I am mother's executor.

I am not sure what happens to these trusts on her death?
Do they wind up and pay out to the beneficiaries ? (me and brother and grandchildren)
Will there be any tax to calculate and pay? (if my mother does not die before May 2018 and the trust continues to a 10th anniversary - I understand that some tax is due at that point.)

From what I researched and read, I think this will be a failed CLT. Yes?
It has been running 6+ years but won't reach 7.
Therefore some taper relief will apply when calculating IHT on the money - is this 8% ?


There are other gifts (PETs) made both before and after the CLT into these trusts, so I know I have to work out how the available NRB gets used up... eg. oldest gifts first etc. and I think I will have to post more questions here as I go.


Some PETs made PRIOR to May 2011, have passed the "7 year hurdle". But do I have to worry about the "14 year rule" for these?
Other PETs were also made AFTER May 2011 and will be classed as " failed PETs" . I guess I have to deduct these from the NRB available, starting with the oldest first? Yes?

Could you help me understand what happens to the trust(s)?

and the order in which I apply the failed PETs and the "not-failed PETs" to the calculation?

I very much appreciate the help this forum provides. Thank you in advance.

[maths]

Regarding your basic question re the trust, it will not automatically wound up on mother's death.

The trust was set up by mother for the benefit of you/brother/gchildren. The death of your mother has no impact on the trust itself. However, her death may or may not cause the bonds to mature but his will only alter the nature of the trust property.

At any point it is probably possible that the trustees could appoint the bonds out to one or more beneficiaries irrespective of mother's death.

Her settlement of the 325k constituted a chargeable lifetime transfer. If earlier gifts were PETs following which mother survives 7 years (which appears likely) then no IHT arose on the setting up of the trust. Even if mother dies within 7 years of trust set up no additional IHT is payable on the 325k. However, this would mean that the nil rate band on mother's death of 325k has already been utilised in which case mother's death estate will be subject to IHT at 40%.

If father pre-deceased mother then it may be that on mother's death she may be entitled to a transferable nil rate band from father.

Mother may also be entitled to a so-called residence nil rate band (if she owns a home to be left to you/brother etc.).