Discretionary Trust Strategy

Discretionary Trust Strategy

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A discretionary Trust for children has built up an accumulated Tax Pool of £4K+. This has arisen due to paying annual dividends to the beneficiaries' which have been less than the taxed income for the year. This has simply built up.

So, is the best plan to go back and identify the historical (taxed) income that has not been paid to the beneficiaries', but held by the Trust and make payments to the beneficiaries to run down the Tax Pool, or is there another option?

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By LyneT
31st Dec 2013 09:00

It is not necessary to identify the historical taxed income in order to make the payments.  It is ony necessary to make sure that the tax credit on the distribution equals the tax pool.

If the beneficiries are non taxpayers then they can reclaim the tax credit so from a tax point of view, yes, it makes sense to make such a payment.

However, there are sometimes non tax reasons why you would not want to make the distributions. eg spendthrift beneficiaries, unsuitable relationships, effect on state benefits etc.

I always say to trustees when they are asked for money by beneficiaries "What would the settlor want you to do?  If he wanted them to have it, he would have given it to them"

It is worth remembering that the tax pool does not die.  It stays there unil the trust is wound up and can be used at any time. 

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