What to do with undistributable trust income

Discretionary trust's accumulation period has ended but beneficiaries are declining to take income

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I am a trustee of a long-standing discretionary trust. Its accumulation period ended some time ago, meaning all income should now be distributed. But it still has Undistributed Income, and its investments continue to produce income. Unhelpfully, despite being regularly asked, none of the surviving beneficiaries want any income at present, but may in the future I suppose. 

So my question is: What are we supposed to do with the income if we can’t give it away?!

Is our only option to appoint new beneficiaries (which the trust deed allows), who are in greater need than those currently named?

Additionally, there is a 10 year IHT charge coming up. Am I right in thinking that this charge has to be paid out of capital - hence, there would be no point in retaining income to cover it?
 

Replies (4)

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By Tax Dragon
08th Dec 2023 20:33

IHT is a tax on trust capital. Though it seems reasonable to say that the charge on income should be paid from that income.

If none of the beneficiaries will take the income, spend it on accountancy and tax advisor's fees. (I can act as the latter.)

Fwiw I disagree with the answers you received on your other thread. Your trust pre-dates 2010 so (unless you took successful legal measures to change this) is still bound by a pre-2010 incarnation of s164 LPA 1925.

It sounds like you also disagreed, else you wouldn't be asking this question. Having been guided incorrectly last time, you know the risks of relying on responses on this (indeed any open) forum.

The good news is that, if you have written confirmation from all of the current beneficiaries regarding their disinterest in the income, I guess you are safe from them suing you for not handing it over!

(But don't rely on me. I am not a lawyer.)

Thanks (1)
Replying to Tax Dragon:
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By bernard michael
09th Dec 2023 10:00

Tax Dragon wrote:

IHT is a tax on trust capital. Though it seems reasonable to say that the charge on income should be paid from that income.

If none of the beneficiaries will take the income, spend it on accountancy and tax advisor's fees. (I can act as the latter.)

Fwiw I disagree with the answers you received on your other thread. Your trust pre-dates 2010 so (unless you took successful legal measures to change this) is still bound by a pre-2010 incarnation of s164 LPA 1925.

It sounds like you also disagreed, else you wouldn't be asking this question. Having been guided incorrectly last time, you know the risks of relying on responses on this (indeed any open) forum.

The good news is that, if you have written confirmation from all of the current beneficiaries regarding their disinterest in the income, I guess you are safe from them suing you for not handing it over!

(But don't rely on me. I am not a lawyer.)


A lawyer is precisely what the OP needs to avoid present and future liability
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Replying to bernard michael:
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By Justin Bryant
09th Dec 2023 12:32

Yes; their high fees will probably solve the very problem they're advising on here.!

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Replying to Justin Bryant:
RLI
By lionofludesch
09th Dec 2023 14:59

Justin Bryant wrote:

Yes; their high fees will probably solve the very problem they're advising on here.!

[chuckle]

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