Planning for discretionary trust

[JimmyB99]

A friend of mine is a widower and and is considering putting in place a discretionary trust for one of his children in his will. Before talking with his solicitor, just wondering if anyone can advise on the following please?
1. When is CAT payable on the money earmarked for the trust?
2. I've seen the term protective discretionary trust - is this the same thing as a discretionary trust?
3. In order to avoid the initial and on-going discretionary trust taxes, what evidence is likely to be needed to demonstrate that his son (with autism) is unable to manage his affairs?
4. Is it sufficient for now to provide for the establishment of the trust in his will (and select the trustees) or is there more that needs to be done now?

Any insights appreciated.

 

[TomEdison]

1. Putting money into the trust generally doesn't attract CAT; CAT arises when money is paid out of the trust, to one or more of the beneficiaries.

2. It's not a strictly defined term, but "protective discretionary trust" usually refers to a discretionary trust established for the benefit of a beneficiary who is unable to manage their own affairs, and needs protection (as in this case). Sometimes it refers to a trust established for someone who is already seriously in debt and needs protection from their creditors.

3. Where you're establishing a trust for the benefit of a person with an incapacity, you need to apply to the Revenue and get their clearance; otherwise you don't get the discretionary trust tax exemption. Your friend will ll need a medical report from a doctor. The time for doing this is when the trust is established which, in the case of a trust established by will, is after your friend's death. Your friend doesn't need to do anything now but, for their own comfort, might want to get confirmation from the child's medical advisers that, when the time times, they will be happy to give the necessary medical report.

4. Provide for the trust in the will, select the trustees and (optional, but usual) write a letter of wishes setting out how he would like the trustees to use the trust fund. (This isn't binding on the trustees, but it's something to which they normally attach considerable weight.) From time to time after the will has been made your friend should review the arrangements and consider if they need changing — e.g. if one of the trustees originally nominated is no longer able to act; if the child's circumstances change; if your friends views on how the money should be used change.