Setting up a Discretionary Trust

[IR14]

Q: A Will contains clauses that place assets into a discretionery trust for a minor.

Does this constitute the trust instrument, i.e. do we as executors / trustees need to have other paperwork drawn up to set up the trust?

Does the trust need to be registered with HMRC or do we just need to complete tax forms annually?

Ant advise will be greatly appreciated.

[Lee Young]

The Will, once death has occured, is the original trust instrument. You will need to register the trust with the Revenue for income tax and CGT purposes, best done by lodging form 41G with the relevant trusts office and this will result in the annual self assessment retuern being done.

If it is a discretionary trust you will also have to be mindful of the periodic and exit charge requirements for IHT purposes.

[Anthony Nixon]

Yes the will is the trust instrument. You will need to notify HMRC who will send you their information form (41g) to fill out and then send returns annually.

I also recommend that you obtain advice on whether this is the best structure for the particular gift.

Discretionary trusts have awkward income tax rules.

From the IHT point of view, within the first two years after death, the trust can be converted to an immediate post-death interest or to a bare trust, if that is more advantageous.

If the trust was set up on the child's parent’s death, you have the other options of converting it to either a bereaved minor's trust or 18-25 trust as well.

Finally, you can leave the assets within the discretionary trust until after two years has passed from the date of death and then give the child the right to the income. This keeps you within the IHT relevant property trust rules, but may be the best way to deal with the income tax complexities.

Anthony Nixon CTA TEP Solicitor
Partner, Thomas Eggar LLP, Southampton and Chichester
anthony.nixon@thomaseggar.com
023 8083 1224

[IR14]

Thanks Lee and Anthony for your tips and advise, very helpful.