Who benefits from a Discretionary Will Trust?

[peter@2711.co.uk]

Briefly - Trust set up at £250,000 by Deceased's Will in 2003 . Lasts for 21 years. 16 Beneficiaries - 4 now deceased, but none of them know they are beneficiaries. Annual income under £1,000 -solicitors charge £5,000 pa so value of trust keeps reducing. Widow, now in 90's (no children) can only benefit from income, so like all beneficiaries has not received anything. She is asking what happens in 2024?

[Lee Young]

Who are the trustees? Need to determine the reasons for its creation as this might explain why for example it has not yet been wound up. It does not have to last its full trust period, though a 21 year trust period seems short.

[tax_schmax]

Would you say the beneficiaries are becoming disgruntled. Or would they be so if they knew how the trust was being managed. If the trust is indeed discretionary, the trustees have discretion over who benefits from the trust. I can only think of one reason that the income would be less than £1000 p.a. and that would be because the asset in the trust is non income producing. Recently, cash would produce a low income, but this has only been the case since 2009. Life assurance investment bonds are commonly used to reduce the cost and accountancy burden of managing a trust, but as you can see, where there is an income beneficiary, they can often lose out. Trustees do have powers to appoint capital to beneficiaries, but most importantly, the trustees need to be managing the trusts with the best interests of the beneficiary in mind.

The trust should have a statement of investment objectives and it is also nice to see a statement of wishes from the settlor. This gives the trustees enough clues how to treat the trust fund to achieve what the deceased intended.

£5000 seems expensive but I don't really know what is being done in this case.

[peter@2711.co.uk]

Thanks Lee. I am trying to assist a friend who has an EPA over the Widow's financial affairs.

The Trust was created in a Will June 1999. It is for "the maximum amount without Inheritance Tax being payable". The Perpetuity Period is 80 years, but the Trustees seem to have absolute powers for 21 years from death, in 2003.

No Specific Trustees mentioned, so it fell to the Joint Executors and Trustees of the Will, being the Widow (who has always been a Trustee) and the Trust Company of a Bank - Bank taken over - then solicitor - retired, and then replacement Solicitor Trustee.

Apparantly created purely to avoid IHT. Deceased had no blood relations surviving at date of Will, so the beneficiaries are his sister -in-law (late 90s) her 2 children (70s) plus friends, only 3 believed to be alive - remaining beneficiaries believed to be army colleagues from WW2, whearabouts unknown. However, as mentioned, I understand none of the beneficiaries know they are beneficiaries - it was to be a nice surprise for them.

As far as I can tell, by 2024 all the beneficiaries will be over 100 apart from the 2 Nieces who will be 83 & 85.

[peter@2711.co.uk]

Thanks tax-schmax
I do not know the beneficiaries and they do not know they are beneficiaries. There is No statement of investment objectives for the Will Trust in the Will - the Trustees can aparantly do just what they like - they have powers without restrictions.

Investments include a MS Growth Tracker - Nil Income. Main Income £418 in last financial year was from a Bank of Ireland Income Tracker. None of the investments are what I would consider "Normal", ie in a FTSE Company. Widow Trustee does not understand "shares".

From what you say, can the 2 Trustees decide to pay out the capital to the remaining beneficiaries, as they think fit, without referring elsewhere?

My only other knowledge of a trust, was a Marriage Settlement Trust. It was very valuable when set up, but with disasterous investing and the remaining capital had to go into IHT calculation of the Deceased, who received no income during her lifetime, it was a disaster. But I thought it was almost impossible to "break" a Trust set up purely to avoid IHT?

[Lee Young]

If the trust was set up to assist with IHT saving then it should have been structured in as efficient a manner as possible, and that does not mean c £5000 of fees a year. The trustees need to be challenged on all their policies, from their choice of assets to the asset class themselves, their fees, and also whether the trust is needed to save IHT anymore. The beneficiaries (potential) should be aware of the trust and their prospective interests not that they are entitled to anything unless and until the trustees decide to benefit them.

Doers the widow trustee still have capacity?

[peter@2711.co.uk]

Thanks Lee - invaluable information.

Widow is in 90s and does not understand Trusts. Neither does her EPA, but he is very capable and can organise most things with help.
Widow can cope with normal things of life and is very good for her age.

With the doubling of NRB IHT for surviving spouse, I cannot see the point of this Trust. Only beneficiaries so far have been solicitors.

However, re above, on the face of it, is it possible for the Trustees (who have unlimited powers under the Disretionary Will Trust) to now pay out all the Capital to beneficiaries of their choice? I believe the Widow Trustee would prefer this to all the hassle she gets.

[Lee Young]

There may be no transferable nil rate band because her husband's will included the nil rate band trust.

However the trustees can ordinarily pay out any of the assets to any of the beneficiaries at any time. The solicitor trustee should not stand in her way if this is what she wants to do.

[peter@2711.co.uk]

Many thanks Lee,

You have given me the confidence to try and get something"sorted"