Discretionary trusts and old age

[Penny235]

My husband and I are both in our mid 70s. We set up a discretionary trust about 15 years ago to provide funds for our disabled son when we die. We also used the Trust account to pay a deposit on a property on the HOLD system (part Housing Association, part Mortgage). In a nutshell, the Trust is there to provide funding to our disabled son when we die and also to receive back the deposit money when our son dies.

My questions for the experts are -

The Bank we set up the Trust with closed the account after about 5 years and we had to find an alternative Bank who would provide a new Trust Account and the alternative account has been running for 10 or so years. Does this make any difference to the validity of the Trust Account, if it has changed in this way?

We only have a few hundred pounds in this account as it pays very little interest and we do not intend using it whilst we are alive. Is this good practice or are we getting it wrong?

If we are both Trustees of the Account and we are getting on, what would happen if we lost our mental abilities to run the Trust? Our other sons are both Beneficiaries in addition to our disabled son, so presumably they cannot be Trustees as well as potential Beneficiaries?

We need to revisit this whole Will/Trust situation to ensure it is all up to date but some advice would be helpful.

Thank you.

[Chocolate-heals-all]

Mencap will advise you, but last time I heard, a beneficiary of a discretionary trust can be a trustee. But I wouldn’t set it up that way. Too much room for problems with conflict of interest, and the government might change the rules. I wonder, if each of you gave lasting power of attorney to a third party, could they act as trustees on your behalf? It seems as if it’s a good idea for anyone in our generation to give LPA to someone they trust. In your situation, I reckon you should be appointing at least one other trustee from outside the family. Some people appoint a solicitor or accountant and simply accept that that trustee will charge expenses.

[Penny235 in reply to Chocolate-heals-all]

Thank you Chocolate-heals-all for your reply. The conflict of interest with a beneficiary also being a trustee is a possibility and we probably do need to appoint an outside interest. It's a minefield trying to cover all eventualities. I am of a mind to wait and see whether the new government change any rules over IHT or Trust before we make any final adjustments.

[Mencap-Wills-Trusts Expert]

Hello Penny235

To start with, if you can, I would advise attending our of free planning for the future webinars; we discuss this topic in great detail and we always have a legal professional present who is able to assist with the legalities of this area of law and who is available to answer questions.

you can book your free places here - mencap.org.uk/willsandtrusts

Finding an alternative account for your trust was out of your control and I wouldn't imagine that has any affect on the validity of the trust. Are you able to contact the solicitor who set this up for you and seek some advice? It would involve looking at the trust deed, that would be where you need to seek clarity on the validity of the trust fund.

You say the trust only has a few hundreds pounds in at the moment - are you and your husband actively using the trust for the benefit of your sons or will there be a chunk that goes into the trunk when you both pass away?

Usually Will trusts come into affect after parents pass away. But sometimes families set them up in their lifetimes so they can use whilst they're still living. It would all depend on your instructions on how you want the trust to be used.

Trustees can also be beneficiaries, but they need to be 18 or over and have sufficient capacity to manage the fund. your other can be a trustee if you wish, but you would need to consider if there would be a conflict of interest doing this. For example; could you son help himself to the funds as and when he pleases, should he be a trustee and a beneficiary. We also advise looking are worse case scenarios when putting these provisions in place.

Guidance given from solicitors who operate in this area of law is that you should layer your trustees, incase any of them pass away, lose capacity or any of them don't want to act anymore. Have you specified multiple trustees in your will?

Many thanks

[Penny235 in reply to Mencap-Wills-Trusts]

Thank you for your advice. I have booked a space on one of the Webinars coming up soon and will check whether the Solicitor who set the original Trust and did our Wills is still on the Mencap List. It's quite a while since we did all this and to be honest I have to reread it all to see what our instructions actually cover! The Trust was really set up for a chunk of money to go into it on our deaths and has always been understood by our other two sons (and Trustees) to be for the purpose of providing financial assistance to our disabled son as and when we are no longer around. I am waiting to see if the new government will make any changes to the Inheritance Tax rules and Trust rules before revisiting/revising the whole lot. But I am aware of the potential conflict of interest in having a beneficiary as a trustee and will consider who else we can add as a Trustee - they just need to be very reliable and a lot younger than us!