Discretionary Trust and IHT

[UnclePhilip]

I am unsure which board this belongs to, but after some thought I think this one is the right one.

Background
We have just set up a discretionary trust, with our three offspring the beneficiaries. This is registered with HMRC. Now we are enacting a declaration of trust plus Land Registry restriction on title, so that an investment property sits in this trust. The property value is well within our NRBs. The 7 year alarm clock will soon be set.

Challenge
We are keen not to do anything to benefit from the trust, and as part of this began to explore opening a separate bank account; to receive rent, pay property expenses, pay out net rent to beneficiaries, plus tax payments with trust SA. However, trust bank accounts are a nightmare. Our NatWest: no such facility. Cater Allan: closed to new applicants. etc etc. May be able to have one with Metro Bank....

Legal Questions
(i) Can my wife and I, as trustees, just open an ordinary bank account (separate from our normal one to evidence separation for tax and admin purposes), and run the trust finances through this, without in any way endangering the discretionary trust as a vehicle to reduce IHT after the 7 years?

My thinking is that as trustees we hold legal title, and so long as we act as custodians for our beneficiaries, and take no personal gain, this should pass muster. One uncertainty is contravening any bank regulations.

I would rather have one of these fabled "trust accounts", but they seem to be so hard to find; this puzzles me as there are thousands of such trusts out there!

Can anyone shine a legal light on this, please?

(ii) Could we even just run things through our normal current account?

Uncle

[Parky]

This thread on another forum https://trustsdiscussionforum.co.uk/t/b ... t/17091/18 asserts that you don't need an account in the trusts name by virtue of HMRC's statement
https://www.gov.uk/hmrc-internal-manual ... l/tsem9930.
It also comments on where trustee accounts may or may not be available.

I have a trustee account with Barclays (I don't think they are available now) only because the trust funds are invested in shares, and the investment platform insists they will only pay out to a bank account in the trust's
name.

[hiriskpaul]

Trusts have become very hard to administer. Metro is I think the only high street bank now offering accounts and they have recently introduced a fee. Investing trust money is becoming increasingly difficult as well. Hargreaves Lansdown used to offer accounts for discretionary trusts, but have now stopped.

I think it is legal to use a personal bank account to hold trust money as far as HMRC is concerned, but the issue is that when you open a personal bank account you agree that it will be used for personal banking, not for use by a trust, so you would be in breach of the terms and conditions of the account. If the bank ever found out they may freeze the account.

I am just at the end of a long and tortuous estate administration and the Will sets up a discretionary trust, primarily for the benefit of someone who is disabled. I am a trustee of the trust and I think we have reached the conclusion that the best thing to do is to pay the money out to the named beneficiary and close the trust. The money can then be worked into an ISA to provide tax free income and growth, unlike the situation with a trust. This does mean that the beneficiary will not receive means tested benefits, but he is not currently entitled to benefits anyway, other than PIP, due to some premium bonds he holds. He is also in receipt of a full state pension.

[UnclePhilip]

This thread on another forum https://trustsdiscussionforum.co.uk/t/b ... t/17091/18 asserts that you don't need an account in the trusts name by virtue of HMRC's statement
https://www.gov.uk/hmrc-internal-manual ... l/tsem9930.
It also comments on where trustee accounts may or may not be available.

I have a trustee account with Barclays (I don't think they are available now) only because the trust funds are invested in shares, and the investment platform insists they will only pay out to a bank account in the trust's
name.

Thank you for this Parky. This HMRC manual you link to is of comfort:

https://www.gov.uk/hmrc-internal-manual ... l/tsem9930

From this it appears that, with scrupulous bookkeeping, we could continue to use our normal current account, so long as we submit accurate personal SA tax forms and trust SA forms.

I remain a little cautious, wanting to ensure the ability to prove no personal benefit from the trust, thereby invalidating it....

[UnclePhilip]

Trusts have become very hard to administer. Metro is I think the only high street bank now offering accounts and they have recently introduced a fee. Investing trust money is becoming increasingly difficult as well. Hargreaves Lansdown used to offer accounts for discretionary trusts, but have now stopped.

I think it is legal to use a personal bank account to hold trust money as far as HMRC is concerned, but the issue is that when you open a personal bank account you agree that it will be used for personal banking, not for use by a trust, so you would be in breach of the terms and conditions of the account. If the bank ever found out they may freeze the account.

Thank you for this hiriskpaul. I suppose the moral of this is to continue to use our current account, and just keep good bookkeeping records?

I am just at the end of a long and tortuous estate administration and the Will sets up a discretionary trust, primarily for the benefit of someone who is disabled. I am a trustee of the trust and I think we have reached the conclusion that the best thing to do is to pay the money out to the named beneficiary and close the trust. The money can then be worked into an ISA to provide tax free income and growth, unlike the situation with a trust. This does mean that the beneficiary will not receive means tested benefits, but he is not currently entitled to benefits anyway, other than PIP, due to some premium bonds he holds. He is also in receipt of a full state pension.

Without knowing the details (and I've had considerable advisory experience with disability benefits and capital limits), to close such a trust means you'd need to have been quite sure that there wasn't a likelihood of him dipping below capital limits in the future, and the possibility of Pension Credit and what that can passport the recipient into?

Thank you for your post,

Uncle

[UnclePhilip]

Just an update if anyone's looking....

Just opened a trust account with Metro, went surprisingly smoothly.