What is a discretionary trust?

Discretionary trusts allow the trustees to decide how income and capital from the trust is used.

Decisions may include whether income or capital payments are made, who should receive payments and how often, and whether beneficiaries of the trust should have any conditions imposed on them.

Typical uses of discretionary trusts include financial planning, putting assets aside for those who may need financial help in the future (this may include grandchildren, for example) and beneficiaries deemed not responsible or capable of looking after their finances.

What is a bare trust?

Discretionary trusts allow the trustees to decide how income from the trust (Bare trusts consist of assets held by a trustee for a named beneficiary to receive. This type of trust is often used for grandchildren until they’re old enough to look after their money. For example, the age is 18 or over in England and 16 or over in Scotland.

What is a Discounted Gift Trust?

A discounted gift trust allows a sum of money to be gifted into trust for inheritance purposes and the person who created the trust can receive fixed regular payments from the trust for life or until the trust has no remaining funds left. For the purposes of inheritance tax, the value of the original gift may be discounted which means part of the capital may be outside the client’s estate for inheritance tax immediately. The remaining part will also fall outside their estate providing the client lives for at least 7 years from the date they placed the capital into the discounted gift trust.

What is a Gift Trust?

A gift trust differs from a discounted gift trust in that the client doesn’t receive regular payments from the trust or benefit financially from establishing the trust.

Depending on the type of trust used, they may have control over when the beneficiary will benefit. If the client lives for at least 7 years from the date of the gift trust being established, the capital within it will not be included in their estate for inheritance tax purposes.

What is a Loan Trust?

A loan trust allows the person who sets up the trust to make a cash loan to the trustees. The loan is interest free and repayable on demand. The person who created the trust and made the loan can demand repayment of the loan, in whole or in part at any time. Any growth on that investment is outside that person’s estate for inheritance tax. Any outstanding loan at date of death remains in that person’s estate for inheritance tax.

* This information is for Financial Advisers only. does not constitute financial advice…

Which HSBC Life Trusts should be registered?

The following four HSBC Life Trusts are within the scope of the Trust Registration Service:

◦ HSBC Life discounted gift trusts

◦ HSBC Life loan trusts

◦ HSBC Life gift trust

How are trusts with an existing tax liability affected?

For trusts with an existing tax liability, trustees will need to provide the country of general administration of the trust (which will be the UK if all trustees are UK residents). Details of liability to income tax, the investment bond value at the time of trust registration, and the National Insurance number of every beneficial owner under the trust are also required.