A reader wrote to me last week expressing the difficulties associated with setting up a discretionary trust on a platform. He said that like many parents of disabled children, he and his wife are setting up a discretionary trust into which most of their assets will go when they die.
The trustees will be his daughter and son-in-law, who will invest the trust to generate income to look after their brother and also keep some for themselves. The problem he has had is finding an execution-only platform that will offer him this service.
Ringing around the major platforms, the only one I found that will currently let you set up a discretionary trust on an execution-only basis is Tilney Smith & Williamson's Bestinvest. You do not need a financial adviser to help you set up the account, but you would need to contact solicitors to set up the trust deed and entity. The account – which comes with the same fees as a general investment account – can be set up by the trustees. Bestinvest charges 0.4 per cent a year for account values up to £250,000 and 0.2 per cent on £250,000 to £1m.
In normal circumstances, Hargreaves Lansdown allows clients to set up discretionary trusts. However, it suspended a slew of paper-based services (including setting up a trust) at the start of the pandemic and is yet to bring them back. AJ Bell Youinvest and Fidelity Personal Investing will let you set up simple ‘bare trusts’ but they do not support discretionary trusts.
Discretionary trusts allow the trustees to make decisions on what the trust invests in and who the trust pays out to. They can be set up for a future need, such as a grandchild that may need more financial support than other beneficiaries at a point in their life, or beneficiaries who are not capable of dealing with the money themselves.
With bare trusts, or 'naked trusts', the trustees have the power to make investment decisions but they have no say in how or when the trust's capital or income is distributed. They are the simplest way of passing on assets while having them overseen by trustees until the beneficiaries are old enough.
Some brokers – such as Fidelity and Charles Stanley – will only permit discretionary trusts through their advisory channels. Fidelity’s FundsNetwork adviser platform, for example, facilitates discretionary gift trusts, bare gift trusts, bare loan trusts and discretionary loan trusts. However, these must be set up via your financial adviser, which incurs extra costs.
Most platforms, including Barclays Smart Investor, iWeb, Halifax Share Dealing and interactive investor, don’t offer trusts at all. Jemma Jackson, head of public relations at interactive investor, says: “These types of account are not straightforward to administer and it is a manual process requiring highly specialist and dedicated teams.”
If you are looking at setting up a trust for a child or grandchild with a disability, you can set up a ‘trust for vulnerable beneficiaries’, where the trustees are entitled to a deduction of income tax. For more information on how trusts are taxed, read the Investors’ Chronicle article “Tax Planning and the role of trusts”, from the issue of 02.10.20.
