Bare trust - avail of €1,270 annual exemption from Capital Gains

presidenttttt

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€1,270 tax free allowance annually

I understand I can invest funds for them, in their name, and they can avail of the allowance yearly.

With a bare fund I can get access at any time and can spend the money on them - which is easy with school and life related costs they incur.

Any downsides here?

Assumption that own pension already maxed.

Adding to wife's pension seems like the next step - but I dislike the inflexibility
 
What €1,270 "tax free allowance" are you referring to?
CGT annual personal exemption or something else?
How would CGT be relevant to a bare trust unless it's investing in capital assets such as direct shareholdings or property etc.?

Apart from today your whole post seems a bit confusing and unclear to me.
E.g. what does your wife's pension have to do with a bare trust?

You might want to explain more clearly and in more detail exactly what you're intentions are here.
 
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I didn't think you can get access to the bare trust - if it's in little Johnnie's name you can't get it back out unless at 18 he assigns you a legal right to make decisions with it until 25 but even so you can't remove it

Usually the bare trusts are administered (I don't fully know) so they take care of deemed disposal.

If you want to spend money on them you have to keep the money in your name.

So to answer the question "any downsides here" - the downside is I think you've made a few incorrect assumptions about bare trusts to begin with
 
understand I can invest funds for them, in their name, and they can avail of the allowance yearly.

With a bare fund I can get access at any time and can spend the money on them - which is easy with school and life related costs they incur.
No, no, no.

The assets in the trust belong to your kids, as do any earnings or gains which those assets generate. They don't belong to you.

As trustee you control the assets, but you are obliged to exercise that control exclusively for their benefit and not for yours, and you mustn't put yourself in a position in which your interests and theirs are in conflict.

Using trust assets to pay for things that a child would normally have paid for them by their parents (i.e. you) is a clear conflict of interest. It's glaringly obvious that using your child's money to pay e.g. schoolfees saves you the cost of paying them yourself — that's a benefit primarily to you rather than to the child, who would go to school either way. You could only justify spending their money on something that was for their benefit and which you yourself, as their parent, couldn't afford or otherwise couldn't be expected to pay.
 
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Using trust assets to pay for things that a child would normally have paid for them by their parents (i.e. you) is a clear conflict of interest.

Not only is it a conflict of interest, it's pointless. Why would a parent transfer money into a bare trust only to pay it out again for education?

They should just pay for the education themselves.
 
it's pointless
I was going to say the exact same thing.

Unless they want to give the money to their children, there is zero point in doing this.

Setting up a bare trust structure to avail of the annual CGT exemption should be questioned too. Setting up these structures is complex and time consuming. Adding in solicitors fees to create the trust instead of using the pro forma used by life companies will reduce the net gain of what they are doing. Given you probably won't take the money out each year (why would you disrupt the power of compounding if your don't need to?), it would be the wrong thing to do.
 
Not only is it a conflict of interest, it's pointless. Why would a parent transfer money into a bare trust only to pay it out again for education?
Well, this is what the OP is trying to do:
Setting up a bare trust structure to avail of the annual CGT exemption . . .
I think the idea is that the parent would buy shares/securities on trust for the kid, realise enough of the (hopefully) accruing gains each year to avail of the kid's SGE, and put the proceeds of realisation towards paying school fees or discharging other "life expenses" (or reinvest them on behalf of the kid, if not needed for that purpose). Whent the kid reaches 18 the remaining shares/securities would belong to the kid absolutely.

As Steven points out, the tax saving resulting from availing of the SGE each year probably wouldn't cover the costs of establishing and documenting the arrangement.
 
Sorry. Small Gains Exemption — the €1,270-worth of capital gains that you can make in any year without having to pay any CGT.
 
What is the cost? I have looked again and see no requirement to engage a laywer or complexity for basic bare trust setups.

If we use the express trust rules as a proxy for a lack of specific bare trust findings. It asks for 3 things in writing, known as the “three certainties”. The subject matter must be certain, the objects of the trustmust be certain, and the words relied on as creating the trust must have been used in an imperative sense so asto show an intention to create an obligation. The express trust must also be established by deed or other declaration in writing. If the three certainties are present and in writing, any document can potentially create an express trust within the scope of CRBOT.

So my understanding is it can be done informally. Can anyone point me to counter regulation?

Practically- My intention is a detailed email to myself and wife for a paper trail. It will state amounts gifted (under annual thresholds), and intention that funds will accumulate as savings or for use for the childs direct costs e.g., education.

I understand any investment must be in the childs name - Interactive Brokers do family accounts where a childs money can be siloed into a seperate account.

Gains would avail of the small annual capital gains allowance. It is not huge, but with several children it is better than nothing.

Happy to be corrected of course - hence the thread.
 
I understand any investment must be in the childs name - Interactive Brokers do family accounts where a childs money can be siloed into a seperate account.
No, no, no. The whole point of a trust is that the assets are not in the name of the beneficiary — they're in the name of the trustee. The trustee is the legal owner of the trust property. But the beneficiary is the "beneficial owner", which is to say, the trustee must use the trust property for the exclusive benefit of the beneficiary; must account to the beneficiary for his handling of the trust property; and must derive no personal benefit from his ownership of the trust property. So far as tax is concerned, income and gains arising from the trust property are income and gains of the beneficiary, not of the trustee. If the trustee dies, his executor/administrator gains control of the trust property, but subject to the same obligation to use it for the exclusive benefit of the beneficiary.

The purpose of the trust documentation is to establish that this relationship exists, so that the trustee is subject to these obligations.

My intention is a detailed email to myself and wife for a paper trail.

I wouldn't use an email, however detailed. Emails get deleted, or lost when an email account is changed, or when a server is damaged, or just lost because they get buried in digital dross and people forget they are there or cannot trace them.

You need a physical document that you can put your hands on, if necessary, decades after the arrangement has been set up. I know you're not currently interested in any CAT advantages, but you never know what the future may hold; when you do die, hopefullly many decades from now, it will be signficant that this property is held on trust. So you want a document that your children and your executor will have access to, decades from now, when you're not around to remind them that the document exists or to tell them where to find it.

So, hard copy document, please. Something that looks like it might be important — minimises the chances of it being overlooked or thrown away. Something that you keep with the same care with which you keep, say, your passport.

Something dated — you need to be able to show that the trust documentation was in place when you set the arrangement up. It mustn't look like something that could have been bodged up when the Revenue first came enquiring.

It will state amounts gifted (under annual thresholds), and intention that funds will accumulate as savings or for use for the childs direct costs e.g., education.

It doesn't have to say what money will be going into the trust — at the point where the arrangement is set up, you probably can't say categorically what money will go into it, since your contributions may vary from year to year according to your circumstances; grandparents may or may not contribute; etc. I think your better course is to identify a specific investment product, broker account or whatever — I don't mean identify it by product name or description; specify an actual account number or policy number. This is the trust account/trust policy; everything paid into it or credited to it belongs beneficially to little Joe or little Sinead or whoever. Keep the documentation establishing the account/policy/ whatever and the trust documentation together. Keep full accounts showing every amount paid in, who that amount came from, what transactions were effected on the account, what income and gains accrued.

Don';t talk about using the money for education costs (or anything else). It's crucial to the success of this strategy that you are setting up a bare trust, not a discretionary trust. If this is a bare trust, the trust property belongs (beneficially) to the child absolutely. It's his money, end of. Children don't pay their own schoolfees; at least, not while their parents are alive. Any hint that you see yourself having any role in deciding when and how this money should be spent is dangerous; if you contemplate using the trust property in that way then definitely don't use your own home-made trust declaration; get a professional on the job.

The whole deal with a bare trust is that this is the kid's money. The only reason you are holding and managing it for him is because he's under 18. The day he turns 18 you tell him about it (if he doesn't already know); you tell him how much there is; you tell him you'll hand it over to him on demand; and you do hand it over to him on demand.

(That's not to say that you can't also offer him the benefit of your wise parental counsel about what do do with his unimaginable wealth. But what you're doing there is suggesting to him what he might decide to do with his money. If the ungrateful whelp rejects your advice and demands the money so that he can fund a summer of drunkeness and debauchery, you hand it over; it's his money.)
 
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Thanks Tom. So you broadly agree with approach - but suggest being more robust with actual paper trail, and good points on wording.

I suppose the way investment broker is setup the account is my name with sub account into their name. Not sure of details yet but I suppose it serves this purpose (I couldn't for example setup 4 accounts in my own name)
 
I don't see why you couldn't set up brokerage accounts in your own name, in principle. After all, you can set up four bank accounts in your own name, with the accounts being distinguished from one another by having different account numbers, so there is nothing to stop brokers operating a similar system.

But there's probably less call for it, and a broker may not be set up with the appropriate systems and softare — their systems could have been designed on the basis of a "one customer, one account" model — and the bottom line is that you can't force the broker to set up four accounts for you if he doesn't want to. So you're going to have to work within whatever systems brokers have set up to accommodate arrangements of this kind.

The bottom line, though is that you will be the broker's customer, and you will be the nominal owner of the shares and securities in the account. The broker can (and should) be aware that you hold these shares and securities as trustee for Presidentttt Jr.; how they note that in their records is a matter for them but it should be noted.

One of the cardinal rules for being a trustee is that you must never mix the trust assets and your own assets. That's why, if you also do your own personal business with the same broker, the trust asses and your own assets have to be clearly identified and clearly segregated. If, for example, you owe the broker money in relation to your own account and are in default in paying it, it must not be possible for the broker to recover what is owed to him from the trust account.

In the OP, you mention utilising the beneficiary's annual small gains exemption. This implies that you will be buying and selling on their behalf. If this is simple bed-and-breakfasting (sell the security to realise a gain; buy the same security again) that shouldn't be a problem. But if you intend to be a bit more active — engaging in stock selection; varying investments with a view to improving returns — you're in more treacherous waters. Remember, this is not your money you're playing with; it belongs to someone else. If you make judgments that, in the event, don't turn out well, somebody else loses money. And they might have a remedy against you for that.

If you had a proper grown-up trust deed drawn up by someone paid to do so, it would set out at length the scope of your investment powers — what you could and couldn't invest in, etc. In fact, if you're contemplating actively managing the account in this way I'll say again — go and get a proper, professionally-prepared trust deed that will allow you to do what you want to do.

Even, if all you contemplate is bed-and-breakfasting for tax efficiency, there's still the issue of what you will invest in each time more money is added to the trust. Without a full trust deed in place setting out your investment powers, what you can (and must) do here depends on the rules in the Trustee Acts and in the decided cases. And there's a lot of them. Among other things:
  • You can only invest in authorised trustee investments. Your broker will be able to give you a list of these but it's basically gilts, bonds issued by banks, other bonds rated AA or higher, bank deposits, units or shares in a collective investment scheme, certain life assurance products, the shares of Irish-listed companies with a market cap of €128 million or more; the share of companies listed on other recognised stock exchanges with market cap of €540 million or more.
  • At least 60% to be invested in instruments denominated in euros
  • Not more than 10% in shares issued by any one company
  • You must take "due account" of the fact that the trust will come to an end when the beneficiary is 18; that determines your time horizon.
  • You must take due account of the need for appropriate diversification and appropriate liquidity
  • You must review the investments at least every 6 months
  • There's a very high duty of care and prudence — again, this is not your money
  • No self-dealing — don't sell anything you own to the trust; don't buy anything from the trust; don't invest any part of the trust assets in any entrprise in which you have an interest.
  • You have to act in the beneficiary's best interests at all times.
Keep proper accounts. Don't just keep them for as long as the Revenue might want to see them; keep them until the beneficiary is 18. Then hand them over to the beneficiary.
 
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