Setting up a Trust - any other way?

[Tara]

Not sure if this is the right place to post this but will give it a go anyway.

Is there any other way, apart from setting up a trust, to leave shares to beneficiaries in a will so that they only receive the income from the shares?

The concern is that the beneficiaries may not be very responsible with the inheritance. For example they may sell the shares and permanently lose the annual income, or they may sell the shares and waste all of the money, or sell the shares and give all of the capital to other persons.

And if setting up a trust is the only way to do this, how should a person who knows very little about trusts go about doing this? Do you just make an appointment with a reputable local lawyer?

The trust instructions would simply be to distribute the annual dividends from the blue chip shares, or a proportion of the annual dividends, to the beneficiaries.

Also if anyone knows :

Should the trust be run by the same person or lawyer who is the executor of the settlor’s will, or should it be run by a different person?

Can trusts be easily set up by someone in any country or do you have to be resident in a certain country? I have always thought of trusts as a UK thing but can a trust be easily set up by someone resident in France or Portugal? Both the settlor and the beneficiaries of any trust would be resident outside of the UK.

Should the trust be registered and managed in a certain country or can it be registered and run from any country? I understand that places like Channel Islands are very popular for setting up trusts but presumably they can be set up in any country?

Can a beneficiary or beneficiaries of the trust also be trustees of the trust?

And how would the average annual charges and fees for the trust usually be calculated? Is it usually a fixed annual fee or a percentage of the trust assets? There would be no portfolio management required by the trust. The instructions would simply be to distribute the annual dividends from the shares to the beneficiaries.

And will the trustees accept an instruction from the settlor to never sell the shares or would the trustees have discretion to sell the shares? The whole purpose of the trust would be to keep the same blue chip shares left in the will and to maintain the same income level for the beneficiaries.

And how would a trust normally be ended? Would the beneficiaries have a right to end the trust at any stage, assuming that they were only entitled to the annual income? And if they do not have the right to do this, how would such a trust normally be ended and who would be entitled to ownership of the trust assets? What happens to the trust and the trust assets on the death of the named beneficiaries?

And what about fraud by trustees? There is a natural concern about leaving assets in a will to be managed by some unknown trustees. Is there any risk of the assets of the trust being misused or stolen by the trustees? And if so is there any insurance or any way for the beneficiaries to get the assets and money back?

I assume that if a large bank or a large trust company was used then this risk of fraud would be greatly reduced as they will have the funds to compensate for any fraud, but if a small company or law office was used then is it likely that the risk of fraud may be greater?

I know it is a lot of questions but just looking for a bit of general advice and direction.

[genou]

Not sure if this is the right place to post this but will give it a go anyway.

Is there any other way, apart from setting up a trust, to leave shares to beneficiaries in a will so that they only receive the income from the shares?

No. You can leave the shares absolutely to a trusted person, but they then own the shares, and whether they fulfil your wishes, and what happens if they die, is completely beyond your control. Not every jurisdiction recognises trusts; they are a peculiarly common law concept. If beneficiaries / trustees are not to be UK tax resident you need advice specific to each jurisdiction that would be involved.

If you insist on a trust, by all means see a lawyer - google STEP for members local to you.

It is very brave ( in Sir Humphrey terms ) to require the trust to simply hold the shares you leave. Stuff happens. The trustees will need powers to deal with the shares as if they owned them ( which legally they will ).

There is nothing to stop your executor(s) and ongoing trustee(s) being different people.

Assuming you are in England, the trust must end ( google rule against perpetuities ), but in practice new trusts can be created to roll over the purposes of the original trust ( think Duke of Westminster, but also think DoW amounts of property ). Even then, the first trust must have a final destination for the capital, be that some or all of the beneficiaries or a charity.

Fraud is probably low risk - the trustees would normally have to file accounts and returns with HMRC and report to the beneficiaries. For a professionally administered trust there is even less risk of fraud, but the fees will be eyewatering, particularly if you make the mistake of appointing a bank.

My final thought would be not to do this. If you want people to benefit from your largesse, then benefit them. You will have done your best, and you will never know how things turn out. The notion that dead people can reach out from the grave to control assets is a peculiarly English idea which spread to other countries courtesy of Empire . Many jurisdictions -France and Germany for example - don't even have the idea of a will as understood here. Assets are distributed according to legal rules with no regard for the deceased's wishes.

[Urbandreamer]

I know it is a lot of questions but just looking for a bit of general advice and direction.

I think that one issue is that there is no "general" advice.

Trusts are widespread and recognized by many countries, but each will have different laws and rules about them.
The only thing that I can think that might be generally accepted is that the term "trust" means trust. As in you must trust those who administer it.

Trusts date back to the Crusades, which were not just an English thing. In fact , if I recall correctly, King Richard the Lion heart was French and is buried in that country.

Trusts are a specialist area, but I did get my lawyer to arrange for a discretionary trust to be set up when I die. Then later changed my will to not do so. He had to charge me extra because he had to research the subject, but again it's a matter of "trust". (it was a IHT thing, which is no longer an issue for me)

A discretionary trust gives the trustee authority to do almost anything, while maintaining the spirit of the trust. They could pay income "for life", or one day decide that the beneficiary has attained majority and wind up the trust. With a discretionary trust it's up to the Trustee. However they pay tax above standard rate and require significant paper work. If I recall correctly, while there could be a conflict of interest, it IS possible for the trustee to also be a beneficiary. Take advice on that though.
Bare trusts are more simple, usually administered by parents, less/no paperwork or special tax, but are wound up when the beneficiary is 18. Had a couple of them too.

Accountants and financial advisers get involved in trusts as well as lawyers and may be more appropriate.

Dealing with tax and the law means that it's "usually" a good idea to involve professionals. However I don't believe that trustees have to BE professionals. They could simply employ them to deal with that aspect.

I would expect problems with a poorly written trust when trustees die. I believe that a well written one could allow trustees to retire and be replaced. Indeed there are good examples of long standing trusts that are generations old. They are normally set up for a purpose though rather than for specific people.

Re, is there another way than a "trust", I don't think so. What you are describing IS a trust. Shares held for a party who has no say in the disposition of those shares.

A question that springs to mind, and please don't answer it, is are we talking thousands, hundreds of thousands, millions? Millions could support the costs of more effort than hundreds of thousand. Specifically managing a share portfolio. What do the trustees do about take overs, rights issues or even buggy whips manufacturers going into a down turn.

As for "don't do this", some people have to. Trusts exist to support the lives of children who can never grow up as long as they live, or who did, but are now mentally children.

[Adamski]

Hi Tara, the simplest way is setting up a bare trust, you can do this yourself - fill out a bare trust dealing form. Example:

https://www.ajbell.co.uk/useful-forms/b ... ation-form

You set up two trustees yourself and someone else to manage it.

"Bare trusts are the simplest type of trust and are created when you make a gift into a designated investment account with the intention of creating a trust. The child is the beneficiary and there are normally two adults acting as trustees. The child becomes automatically entitled to the investments at 18. However, as a trustee, you may be able to distribute money earlier if you need to, for example to meet school fees." hl.co.uk

You then have complete control over it, but classed as a gift when you pay money in, redycung the value of your estate for iht, as the legal ownership is with the beneficiary.
Adam

[Tara]

Not sure if this is the right place to post this but will give it a go anyway.

Is there any other way, apart from setting up a trust, to leave shares to beneficiaries in a will so that they only receive the income from the shares?

No. You can leave the shares absolutely to a trusted person, but they then own the shares, and whether they fulfil your wishes, and what happens if they die, is completely beyond your control. Not every jurisdiction recognises trusts; they are a peculiarly common law concept. If beneficiaries / trustees are not to be UK tax resident you need advice specific to each jurisdiction that would be involved.

If you insist on a trust, by all means see a lawyer - google STEP for members local to you.

It is very brave ( in Sir Humphrey terms ) to require the trust to simply hold the shares you leave. Stuff happens. The trustees will need powers to deal with the shares as if they owned them ( which legally they will ).

There is nothing to stop your executor(s) and ongoing trustee(s) being different people.

Assuming you are in England, the trust must end ( google rule against perpetuities ), but in practice new trusts can be created to roll over the purposes of the original trust ( think Duke of Westminster, but also think DoW amounts of property ). Even then, the first trust must have a final destination for the capital, be that some or all of the beneficiaries or a charity.

Fraud is probably low risk - the trustees would normally have to file accounts and returns with HMRC and report to the beneficiaries. For a professionally administered trust there is even less risk of fraud, but the fees will be eyewatering, particularly if you make the mistake of appointing a bank.

My final thought would be not to do this. If you want people to benefit from your largesse, then benefit them. You will have done your best, and you will never know how things turn out. The notion that dead people can reach out from the grave to control assets is a peculiarly English idea which spread to other countries courtesy of Empire . Many jurisdictions -France and Germany for example - don't even have the idea of a will as understood here. Assets are distributed according to legal rules with no regard for the deceased's wishes.

It would of course be better not to have to use a trust.

So what is the best way to protect the inheritance and interests of minor children, without using a trust, in situations where the interests of minor children may be disadvantaged? Can it be done with a simple and correctly worded will?

For example, what if the surviving spouse and mother of the children, has no knowledge of financial matters and is irresponsible with money? What if she has relatives who may try to take any money and inheritance that was left to them? What if she forms a new relationship or marriage and then gives all of the money and inheritance away to a complete stranger and third party?

What is the best way to protect the interests of minor children in these kinds of situations? If the minor children are simply left a large part of the estate in the will, then who will have control over these assets and income until they reach the age of 18 and are able to control the assets themselves? If it is the surviving spouse and mother who has control over these assets, will the inheritance of the children not be at risk of being used irresponsibly or even given away to a third party?

For example, a parent usually has full control over the bank account of a minor child, so would the same thing not apply if the minor child had inherited a large sum of money or a large portfolio of shares?

I have read about the different kinds of trusts on the internet and it seems that “Interest in Posession” Trusts may be quite relevant to the situation.

“Interest in possession trusts are often used to provide for a surviving spouse with the capital of the trust kept intact and passed on to heirs (usually children) when the spouse dies. For example, you may create an interest-in-possession trust, where you designate your wife as the income beneficiary, your children as capital beneficiaries, and all your shares as the trust property. You may state as part of the trust instrument that when you die, income from the shares should go to your wife for the rest of her life. And that the shares should be passed on to your children when she dies. Typically, in this arrangement, the income beneficiary has no right to the shares themselves (or the powers that the shares confer) - just the income.”

Is there any better way than this kind of “Interest in Posession” trust to protect the interests of minor children? If a similar result could be achieved with a simple and correctly worded will, then it would of course be better.

Is it possible though for a person to leave 50% or more of their estate to minor children in a will, without the surviving spouse and mother having any control over the capital, shares or income?

[Lootman]

The notion that dead people can reach out from the grave to control assets is a peculiarly English idea which spread to other countries courtesy of Empire . Many jurisdictions -France and Germany for example - don't even have the idea of a will as understood here. Assets are distributed according to legal rules with no regard for the deceased's wishes.

What irks me about the rules in places like France, and even Scotland apparently, is that those "legal rules" do not allow you to (completely) disinherit certain relatives even if you wish to. So whilst I may not want to "reach out from the grave to control assets", I might certainly want to make sure that so-and-so doesn't get a penny of my money, in certain circumstances.

Now, one way around that would be for me to simply distribute my assets whilst I am still alive, thereby ensuring that the black sheep of my family gets nothing. It might even avoid probate altogether. But a trust would be another method, at least as long as you choose sympathetic trustees.

Note: this does not apply in my case, at least not at this time. But I would always want the option to distribute as I see fit, and not as some politician thinks that I should do.

[scrumpyjack]

Apart from bare trusts for minors and some other exceptions, I really think trusts are to be avoided if at all possible. They can create a lot of friction in families, cost a lot to run and are generally highly taxed because governments view them as some sort of tax dodge, which they aren’t. Often they may be designed to protect people from themselves, but IMO the problems outweigh the benefits.
You may just have to accept that when you give someone money, they may well spend it on things you disapprove of! That’s life, get over it or don’t give it to them in the first place.

[Tara]

Hi Tara, the simplest way is setting up a bare trust, you can do this yourself - fill out a bare trust dealing form. Example:

https://www.ajbell.co.uk/useful-forms/b ... ation-form

You set up two trustees yourself and someone else to manage it.

"Bare trusts are the simplest type of trust and are created when you make a gift into a designated investment account with the intention of creating a trust. The child is the beneficiary and there are normally two adults acting as trustees. The child becomes automatically entitled to the investments at 18. However, as a trustee, you may be able to distribute money earlier if you need to, for example to meet school fees." hl.co.uk

You then have complete control over it, but classed as a gift when you pay money in, redycung the value of your estate for iht, as the legal ownership is with the beneficiary.
Adam

That is very interesting thanks. The potential donor, beneficiaries, and trustees, are all resident outside of the UK however and so not sure if AJ Bell would allow non UK residents to open this kind of account.

And how would such a trust/child be taxed if the child beneficiary was UK resident? Would the trust/child be liable for income tax at the usual tax rates for UK resident individuals?

[genou]

The potential donor, beneficiaries, and trustees, are all resident outside of the UK however and so not sure if AJ Bell would allow non UK residents to open this kind of account.

And how would such a trust/child be taxed if the child beneficiary was UK resident? Would the trust/child be liable for income tax at the usual tax rates for UK resident individuals?

I can't reconcile these two sentences. In the first, everyone is ex-UK. In the second a minor child is in the UK. How does this come about.

Whilst I'm here, I replied originally not knowing that the beneficiaries would be, or include, minors. Minors cannot directly hold shares in England, so there would have to be a trust of some form. But I'm not sure how relevant that is, as I am struggling to see why and when English law becomes relevant. Are you domiciled in England, and therefore intending to have an English will ? Have you checked that the jurisdiction you are in will recognise an English will ?

[scrumpyjack]

I have bare trusts for all my grandchildren. All with HL. In all cases there is only one trustee (myself in all cases but one).
One grandchild is Danish but the trustee is a UK resident aunt. No problem.

Where the minors are UK resident they get the normal UK personal allowances for income tax and CGT.

The Danish one requires her aunt to deal with the Danish tax authorities where it seems there are no such things as personal allowances and everything is taxed. A real PITA. I can see why Trump called it a socialist hellhole!

At least bare trusts incur virtually no costs. Personal accounts with HL incur no fees and the trustee does not have to do tax returns for the trust. A return may have to be made by the parent for the child if income is over £10,000.

[Parky]

Based on your apparent requirements, and especially in view of the non-UK residency complications, there seems to be no alternative to professional advice from a STEP member. https://www.step.org/

[Tara]

The potential donor, beneficiaries, and trustees, are all resident outside of the UK however and so not sure if AJ Bell would allow non UK residents to open this kind of account.

And how would such a trust/child be taxed if the child beneficiary was UK resident? Would the trust/child be liable for income tax at the usual tax rates for UK resident individuals?

I can't reconcile these two sentences. In the first, everyone is ex-UK. In the second a minor child is in the UK. How does this come about.

Whilst I'm here, I replied originally not knowing that the beneficiaries would be, or include, minors. Minors cannot directly hold shares in England, so there would have to be a trust of some form. But I'm not sure how relevant that is, as I am struggling to see why and when English law becomes relevant. Are you domiciled in England, and therefore intending to have an English will ? Have you checked that the jurisdiction you are in will recognise an English will ?

All relevant parties, the donor and the beneficiaries, are resident and domiciled outside of the UK, in the EU. Any potential trustees could potentially be UK resident but that would be unlikely as there seems to be no reason to set up any trust in the UK. The second sentence was simply a general enquiry as to how minor beneficiaries of a UK trust are taxed if they live in the UK.

Yes the main issue and problem is largely about how to best protect the inheritance and the interests of minor children, when the surviving spouse and mother may not be responsible with large sums of money, and may even give it away to strangers and third parties.

Basically, can this objective be achieved with a correctly worded will, or can it only be achieved by setting up some kind of trust?

[Parky]

All relevant parties, the donor and the beneficiaries, are resident and domiciled outside of the UK, in the EU. Any potential trustees could potentially be UK resident but that would be unlikely as there seems to be no reason to set up any trust in the UK. The second sentence was simply a general enquiry as to how minor beneficiaries of a UK trust are taxed if they live in the UK.

Yes the main issue and problem is largely about how to best protect the inheritance and the interests of minor children, when the surviving spouse and mother may not be responsible with large sums of money, and may even give it away to strangers and third parties.

Basically, can this objective be achieved with a correctly worded will, or can it only be achieved by setting up some kind of trust?

Surely a "correctly worded will" is one which will set up a trust to do exactly what you require, in whichever country the assets are located and/or the relevant parties are resident? You cannot have the protection of a trust without a trust.

[genou]

All relevant parties, the donor and the beneficiaries, are resident and domiciled outside of the UK, in the EU....

Yes the main issue and problem is largely about how to best protect the inheritance and the interests of minor children, when the surviving spouse and mother may not be responsible with large sums of money, and may even give it away to strangers and third parties.

Basically, can this objective be achieved with a correctly worded will, or can it only be achieved by setting up some kind of trust?

This is well outside my comfort zone. I don't know which legal system will govern your estate, and if I did, I'd be too ignorant of it to offer any meaningful advice. You are, I think, a long way outside the competence of this forum to offer you advice. Your concerns are not unique here, and they won't be unique where you are. You need to find a locally qualified advisor who deals with these issues and get advice from someone who can speak to the legalities of where you are.

[scrumpyjack]

All relevant parties, the donor and the beneficiaries, are resident and domiciled outside of the UK, in the EU....

Yes the main issue and problem is largely about how to best protect the inheritance and the interests of minor children, when the surviving spouse and mother may not be responsible with large sums of money, and may even give it away to strangers and third parties.

Basically, can this objective be achieved with a correctly worded will, or can it only be achieved by setting up some kind of trust?

This is well outside my comfort zone. I don't know which legal system will govern your estate, and if I did, I'd be too ignorant of it to offer any meaningful advice. You are, I think, a long way outside the competence of this forum to offer you advice. Your concerns are not unique here, and they won't be unique where you are. You need to find a locally qualified advisor who deals with these issues and get advice from someone who can speak to the legalities of where you are.

Yes I completely agree with that, but in the UK a 'bare trust' does not need to be set up with any sort of trust deed or document and does not need to involve a professional. The bare trustee is effectively simply holding investments as nominee for the minor. In my case I simply gave shares and cash to my grandchildren, setting up accounts with HL in my name but designated with the child's initials. I could have made any reliable individual the bare trustee. As the minors are the beneficial owners of the assets any income or gains are theirs personally. After a lot of dithering HMG eventually decided that such bare trusts do need to be registered with the Trust Registration System but that is a trivial matter. My point is that in this country a bare trust is effectively just an arrangement where an adult can hold shares on behalf of a minor. It does not involve all the hassle that goes with other forms of trust. Obviously the situation will be different in other countries.

I set up the one for my Danish granddaughter when we were still in the European Economic Area and HL were happy with that and have not asked me to close it, nor have AJ Bell asked for her Junior ISA to be closed. But it may no longer be possible to set up such a bare trust in this country for someone resident in the EU.

[genou]

The bare trustee is effectively simply holding investments as nominee for the minor.

Indeed, and the moment they reach majority the beneficiary can demand delivery of the trust assets. Which I am not sure achieves the OP's purposes

I set up the one for my Danish granddaughter when we were still in the European Economic Area and HL were happy with that and have not asked me to close it, nor have AJ Bell asked for her Junior ISA to be closed. But it may no longer be possible to set up such a bare trust in this country for someone resident in the EU.

Now I am even more confused. Was your Danish granddaughter UK resident when the JISA was opened and whilst contributions were made to it?

[scrumpyjack]

The bare trustee is effectively simply holding investments as nominee for the minor.

Indeed, and the moment they reach majority the beneficiary can demand delivery of the trust assets. Which I am not sure achieves the OP's purposes

I set up the one for my Danish granddaughter when we were still in the European Economic Area and HL were happy with that and have not asked me to close it, nor have AJ Bell asked for her Junior ISA to be closed. But it may no longer be possible to set up such a bare trust in this country for someone resident in the EU.

Now I am even more confused. Was your Danish granddaughter UK resident when the JISA was opened and whilst contributions were made to it?

Yes she was.

[scrumpyjack]

Indeed, and the moment they reach majority the beneficiary can demand delivery of the trust assets. Which I am not sure achieves the OP's purposes

I found that when my children reached 18, and were aware of the assets, I did nothing and they did not demand immediate transfer into their names.
So whilst legally they could have demanded immediate access and wasted it all, in practice the fact that the assets were registered in someone else's name continued to protect them for several more years by which which time they were sensible enough not to do anything silly.

[Tara]

The bare trustee is effectively simply holding investments as nominee for the minor.

Indeed, and the moment they reach majority the beneficiary can demand delivery of the trust assets. Which I am not sure achieves the OP's purposes

I think a bare trust may solve the problem. The potential donor and beneficiaries presently live in Portugal although they may move country before the children have reached 18. That is why the situation is a bit uncertain. There is also the problem that trusts may not be recognised in some locations such as Portugal, but as far as I know that would not prevent a bare trust or any other kind of trust being set up in another location that does recognise trusts such as Channel Islands?

The inheritance would be mainly shares as the hope would be that the children could benefit from the income every year, even after they become adults. I did not know that children could not own shares. So does this mean that a person cannot leave shares to children in a will? So what happens in such a situation? Does the executor have to sell the shares and give the cash proceeds to the child? With cash yielding so little these days that would not be the ideal solution.

[genou]

I think a bare trust may solve the problem. The potential donor and beneficiaries presently live in Portugal although they may move country before the children have reached 18.

On a quick look, it seems that Portugal has forced heirship over 60% of an estate, but will allow an ex-pat to use the rules of their statehood. So it seems you can do what you like in Portugal, as long as you are not actually Portuguese. Whether the same will be true of anywhere else they go, who knows.

The inheritance would be mainly shares as the hope would be that the children could benefit from the income every year, even after they become adults. I did not know that children could not own shares. So does this mean that a person cannot leave shares to children in a will? So what happens in such a situation? Does the executor have to sell the shares and give the cash proceeds to the child? With cash yielding so little these days that would not be the ideal solution.

If you just leave shares to a minor, it automatically creates a trust to hold the shares until they reach majority. Or you can create a more complex trust.