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Where Taxpayers and Advisers Meet

Grandparents paying school fees from trusts

tracker2017
Posts: 2
Joined: Sat Apr 01, 2017 8:47 am

Grandparents paying school fees from trusts

Postby tracker2017 » Sat Apr 01, 2017 8:55 am

Hi. I have two kids at private school and my parents want to pay the fees for a few years. They have been advised to set up a bare trust for each child to take advantage of the childrens' CBT & IT allowances. I will be one of the trustees of the trusts and so the plan is that each term I remove some funds and transfer over to the school accounts. My concern is that although the fees are charged under each child's account name, the invoices for the school fees are in my and my wife's name. Does that not mean that if we use the funds from the bare trust it is technically a gift from the kids to my wife & I? Any advice very much appreciated.
Thanks

pawncob
Posts: 4482
Joined: Wed Aug 06, 2008 4:06 pm
Location: West Sussex

Re: Grandparents paying school fees from trusts

Postby pawncob » Sat Apr 01, 2017 9:32 pm

And what if it is? Unlikely to be any IHT consequences
With a pinch of salt take what I say, but don't exceed your RDA

devon
Posts: 53
Joined: Wed Aug 06, 2008 3:14 pm

Re: Grandparents paying school fees from trusts

Postby devon » Sun Apr 02, 2017 9:41 pm

An earlier post advised that if grandparents paid the school fees for their grandchildren and did not survive for 7 years, then the school fees would count as part of the grandparents estate for the purposes of IHT.

If as indicated in the response above, the grandparents set up a bare trust for each child to cover the school fees, does this mean that in the event of the grandparents death within 7 years the IHT liability on the fees would be avoided.

AGoodman
Posts: 1023
Joined: Fri May 16, 2014 3:47 pm

Re: Grandparents paying school fees from trusts

Postby AGoodman » Mon Apr 03, 2017 10:57 am

To answer the original question, there are two issues:

(a) yes, it is arguable that it is benefitting you but I think here the better argument is that the child's money is being used to benefit the child. As pawncob states, it is very unlikely to ever be an issue so I would not worry. (it is a much bigger issue when the parents establish the trust, excluding themselves from benefit and then use the monies to pay the school fees they are contractually obliged to pay).
(b) from a trust perspective, you should ensure that the trust deed includes self dealing provisions (which are fairly standard in most precedents) so that you are not in breach of trust when exercising powers in a manner by which you also benefit.

To answer devon's question, the grandparents' gift into bare trust would be a PET at the date of the original trust so yes, it would remain part of their estate for 7 years. Better that than they hold onto the funds and make annual payments, starting a new 7 year period for each payment.

AG

AnthonyR
Posts: 306
Joined: Wed Feb 08, 2017 2:33 pm

Re: Grandparents paying school fees from trusts

Postby AnthonyR » Mon Apr 03, 2017 11:40 am

The other thing to consider is that if the assets are placed into bare trust on behalf of the children they will be entitled to the capital at age 18 and can legally take and spend the money. As such it may be better off considering the use of a discretionary trust as this will give you the flexibility to control it beyond the age of 18 and fund university fees etc.
Anthony Rogers LLB CTA TEP
Fusion Partners LLP
anthony@fusionpartners.co.uk

maths
Posts: 7885
Joined: Wed Aug 06, 2008 3:25 pm

Re: Grandparents paying school fees from trusts

Postby maths » Wed Apr 05, 2017 1:09 pm

I agree with comments above that the matter is unlikely to become a problem. However, it raises an interesting point.

The school will not contract with a child (ie person under age 18) for contract law reasons. The contract is therefore between the school and the child's parents.

If grandparents transfer funds into one or more bare trusts for grandchildren such a transfers are PETs by the grandparents. Any such monies must be applied by the trustees only for the benefit of the beneficiaries (ie the children).

Should the trustees of the bare trusts transfer monies to the child's parents such transfers constitute PETs by the children. A PET is a gift from one individual (child) to another individual (parent) if the property transferred becomes comprised in the parent's estate (which it would).

Alternatively, if the grandparents transfer monies directly to the school this is not a gift to another individual (and hence not a PET) but constitutes the discharge of the parents' liability to the school and as a consequence the parents estates are increased (because they no longer have a liability to satisfy). This would appear to be a chargeable transfer.

tracker2017
Posts: 2
Joined: Sat Apr 01, 2017 8:47 am

Re: Grandparents paying school fees from trusts

Postby tracker2017 » Wed Apr 05, 2017 1:13 pm

Many thanks indeed to everybody who has offered advice. I think the upshot is that it is not a cause for concern and we will proceed as originally discussed.

uncle john
Posts: 10
Joined: Mon Nov 21, 2016 12:15 pm

Re: Grandparents paying school fees from trusts

Postby uncle john » Tue Apr 11, 2017 12:00 pm

I agree with comments above that the matter is unlikely to become a problem. However, it raises an interesting point.

The school will not contract with a child (ie person under age 18) for contract law reasons. The contract is therefore between the school and the child's parents.

If grandparents transfer funds into one or more bare trusts for grandchildren such a transfers are PETs by the grandparents. Any such monies must be applied by the trustees only for the benefit of the beneficiaries (ie the children).

Should the trustees of the bare trusts transfer monies to the child's parents such transfers constitute PETs by the children. A PET is a gift from one individual (child) to another individual (parent) if the property transferred becomes comprised in the parent's estate (which it would).

Alternatively, if the grandparents transfer monies directly to the school this is not a gift to another individual (and hence not a PET) but constitutes the discharge of the parents' liability to the school and as a consequence the parents estates are increased (because they no longer have a liability to satisfy). This would appear to be a chargeable transfer.
With apologies for re-opening this thread - I was wondering whether payments by the trustees to the child's bank account, from which payments to the school could then be made, would still count as a PET by the child. The child's bank account would be in the parent's name, but designated as belonging to the child. I do appreciate that even if such payments did qualify as PET's, it would be unlikely to be a concern.

maths
Posts: 7885
Joined: Wed Aug 06, 2008 3:25 pm

Re: Grandparents paying school fees from trusts

Postby maths » Tue Apr 11, 2017 7:47 pm

payments by the trustees to the child's bank account
Not sure what you mean.

The grandparents would transfer their monies to the bank account held in the name of the bare trustees (who of course hold for the grandchildren). This bank account is the childrens' account from which transfers to the school or parents could be made.

uncle john
Posts: 10
Joined: Mon Nov 21, 2016 12:15 pm

Re: Grandparents paying school fees from trusts

Postby uncle john » Wed Apr 12, 2017 8:24 am

Many thanks - after re-reading your helpful posts a little more carefully, I now see that somehow I confused the various possibilities.
Sorry about that.


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