Children's Trusts

[cassa333]

My children, along with their two cousins, were left a sum of money each but was to be left in trust and as they each reach 21 they are able to get it.

The trust is an 'off shore' one and I don't think the tust they have is very good but I have no say in it so it is not worh complaining about (although I would dearly love to...) Do children's trusts really attract 50% tax?

The oldest has just turned 21 and finished uni but will be starting a new uni course in a few weeks. He has the normal student debts. He has said that he wants to keep his money in until he needs it.

On the face of it I don't have a problem with the idea of him using it as a savings account but wondered if there was a tax implication for either him, the other three children or the trust itself?

[woofgang]

cassa is this the same trust?
http://www.theanswerbank.co.uk/Business-and-Finance/Personal-Finance/Question881052.html#answer-4771584

[buildersmate]

I'm not an IFA either.

Can't disagree with the analysis of the above, but just to add that I'm not sure it is as clear cut as saving for a house deposit. Because the student loans interest for post 2012 loans is charged at RPI plus 3% (so currently 5.5%), I'm not so sure it isn't best to pay these off. If he is on the pre 2012 loan interest rate arrangement, that is different as the interest rate is diddly squat.
There's a whole generation of graduates out there who are never likely to pay off their loan before the time limit of 25 years? expires. But of course for those who are successful enough to have earnings enough for a decent mortgage, they will be well into maximum pay back rates on their student loans in their 30s, which has of course been racking up a significant interest sum in their 20s.

[cassa333]

Hi,

Yes it is the same trust. How 4 years fly by lol

I am not a trustee and have no influence in any shape or form on what or how it is administered. In fact this week is the only time I have seen any information on it. Having now seen this years statement only I think they have not put it in the right sort of trust but that is just my unauthorised opinion. Does children's trusts attract 50% tax?

His student loans and if, when or how he repays them is entirely up to him and I can do nothing but commend him for wanting to carry the money over for saveings. Something a lot of young people should think about :)

I just wonder, because he is now 21 and is a none tax paying student, that it is appropriate that he keeps his share in the trust? Are there any implications for the other three children's shares?

Also I wonder, if the amount is 200, each share would be worth 50. How is the fee taken if he did take his 50 share? Would the fee come out of the whole or from his share? If from the whole then in effect the last shareholders would in effect be paying towards the others fees but they wouldn't pay otwards the last!!!

[woofgang]

Much of what you ask depends on the T and C of the trust and you'd need to ask them that or read the paperwork. I am assuming that the children were 16 when you last posted and not 6 as you posted lol?

[cassa333]

Woofgsng,

I'm not allowed to see the t&c. As I said I have only just seen this years statement.

My twins are now 10eronly 6 when the trust was set up.

[woofgang]

why not? If you know which company the trust is with, then you can get the info directly from them.
Sorry when you said "the oldest" I thought that you meant your oldest child.

As The parent of two of the beneficiaries who are under age, I am a bit puzzled who "won't allow" you.

[twix123]

I also am not an IFA, but having retired early 13 years ago, after nearly 40 years of international banking experience, I would like to make the following observations:

Unless the children are receiving a very substantial income, tax should be nowhere near 50%, especially if the funds are held offshore. The usual reason for overseas trusts was to reduce the liability to UK taxation to nil if possible.

If the Trustees chose an inappropriate investment vehicle, I would raise the question of their possible liability for damages. If you cannot do this, then the beneficiaries should do so!

I presume that the Trustees are 'professional' and are charging fees accordingly. These should be calculated as a % of the total fund and charged annually pro rata to each beneficiary. Therefore, should one of the beneficiaries withdraw their share, their proportion of the charges would have been charged to their settlement, leaving the same ratio of outstanding charges as the remaining shares in the funds.

I commend you eldest for not wanting to withdraw his share of the fund at the present time, but my inclination would be to move the funds elsewhere if the current Trustees are so inefficient (unless any Capital Gain they have managed to realise over the last 4 years substantially outweigh the tax and charges deducted). The wording of the Trust Deed could possibly prevent him continuing to use the Trust as an investment due to his age. Furthermore, as you son is over the age of maturity of his share of the legacy, he has every right to demand a copy of the Trust Deed, which he could share with you to ascertain the Terms and Conditions of the Trust.

[cassa333]

The trustees are the parents of the two older children and not professionals.

They told us that UK children's trust funds incure a 50% tax liability and that is why they went for an offshore one.

I am almost positive that the 21yr old could get a better interest rate and a refund on tax (as a non tax payer student) in a 'normal' investment portfolio but that is up to him. I just want to make sure that because he is still in the fund he is not doing anything that adversly impacts my twos inheritance.

It will take my OH about 2 years to get any information :(