Hi, I am acting as executor for my late sister and not long after probate was granted, I received a letter from Revenue, Athy stating that 6% DTT is payable when the youngest child reaches the age of 21. I was surprised because the amounts involved are significantly less than the inheritance tax threshold but I understand now that in some cases, a DT can reduce inheritance tax. My understanding is that my late sister wanted money to be kept in trust until they are mature enough to spend it wisely.
Q1: Is the initial 6% DTT charge based on the initial value of the trust OR is it based on the value of the remainder of the Trust when the youngest child reaches 21. If the latter, then with 3 children, the amount remaining in the trust will be a small fraction of the initial value.
Q2: Could I avoid the 6% fee by closing the trust BEFORE the youngest child reaches the age of 21.
Q3: Is this a Discretionary Trust given that the will says the each child should receive an equal share? Full text below.
Extract from the will
"All the rest remainder of my estate of every nature and description and wheresoever situate I give devise and bequeath to my children in equal shares with such shares of my estate to be held by my trustees on trust to pay or apply the whole or any part or parts of that share and any income arising from it towards the educational, welfare, medical and maintenance costs of such beneficiary in such amounts and at such times and in such manner generally as my Trustees in their discretion shall think fit until such beneficiaries shall have attained the age of twenty four years and to vest what remains of the capital and accrued income of that share of my estate to that beneficiary after reaching the age of 24. If any beneficiary shall die before reaching the age of twenty four and before their share shall be vested in them then the remaining balance of that share shall pass to their brothers (in equal shares if more than one) and if at that date such are still under twenty four this share shall form part of the trusts under which their benefit is held, to be distributed to them on reaching twenty four."
i.e. the trustee has discretion to advance the payment of a child's share before they reach 24 for education, etc. However the trustee has no discretion regarding the total amount that each child is due.
Extract from [broken link removed]
"The distinguishing feature of a discretionary trust compared to a strict settlement is that, neither any one of the objects of the trust in whose favour the discretion might be exercised, nor the class of beneficiaries as a whole, is entitled, as of right, to any capital or income of the trust, except when the trustees appoint property out to them. Each object of the trust has merely a hope or expectation that the trustees may exercise their discretion in his or her favour."
Q1: Is the initial 6% DTT charge based on the initial value of the trust OR is it based on the value of the remainder of the Trust when the youngest child reaches 21. If the latter, then with 3 children, the amount remaining in the trust will be a small fraction of the initial value.
Q2: Could I avoid the 6% fee by closing the trust BEFORE the youngest child reaches the age of 21.
Q3: Is this a Discretionary Trust given that the will says the each child should receive an equal share? Full text below.
Extract from the will
"All the rest remainder of my estate of every nature and description and wheresoever situate I give devise and bequeath to my children in equal shares with such shares of my estate to be held by my trustees on trust to pay or apply the whole or any part or parts of that share and any income arising from it towards the educational, welfare, medical and maintenance costs of such beneficiary in such amounts and at such times and in such manner generally as my Trustees in their discretion shall think fit until such beneficiaries shall have attained the age of twenty four years and to vest what remains of the capital and accrued income of that share of my estate to that beneficiary after reaching the age of 24. If any beneficiary shall die before reaching the age of twenty four and before their share shall be vested in them then the remaining balance of that share shall pass to their brothers (in equal shares if more than one) and if at that date such are still under twenty four this share shall form part of the trusts under which their benefit is held, to be distributed to them on reaching twenty four."
i.e. the trustee has discretion to advance the payment of a child's share before they reach 24 for education, etc. However the trustee has no discretion regarding the total amount that each child is due.
Extract from [broken link removed]
"The distinguishing feature of a discretionary trust compared to a strict settlement is that, neither any one of the objects of the trust in whose favour the discretion might be exercised, nor the class of beneficiaries as a whole, is entitled, as of right, to any capital or income of the trust, except when the trustees appoint property out to them. Each object of the trust has merely a hope or expectation that the trustees may exercise their discretion in his or her favour."
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