I have a client which is an old grandparents A&M trust, which has had the necessary done to convert it to a discretionary trust, capital payable to the two children when they reach 25. Trustees are the parents. Both children currently under 18.
In the past, money would be paid out to the parents after the event - ie parents would keep a tally of money spent and then claim from the trust once or twice a year.
This year, they have opened up a current account in the trust name and put some trust funds in there, and are paying for everything direct from the trust - so there is quite a big volume of transactions going out - some for only a few £ (eg weekly bus ticket for school), others quite a bit more.
I am not worried about whether the trust can pay for the items that it has paid for - all seems quite reasonable - school fees, trips, music lessons etc etc, but I am concerned that no consideration is made into how these payments are structured when they are made. They pay for everything as they go along with no thought as to whether it is a capital payment or an income payment.
One of the children reaches 18 this year, and then capital payments to her would be subject to an exit charge, so I can see this all going horribly wrong. The solicitor seems ok with all of this but I am concerned.
Any thoughts?
Replies (2)
Please login or register to join the discussion.
What is the difference?
When the parents paid first, someone had to do a post-hoc analysis of capital or income, didn't they? So is your concern with the setting up of the current account, or the total amount of the drawings?