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JustAnswerKM, Solicitor
Category: Law
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Experience:  Court of Protection, civil litigation, divorce and inheritance
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Can nil-rate-band discretionary trust assets be used predominantly

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Can nil-rate-band discretionary trust assets be used predominantly to lend (at commercial interest rates) to children (who are adults and trustees) and grandchildren of the settlors? The loans would be for 5 years and secured, to enable the children to personally invest and later repay the trust, thereby not causing them to go over the IHT allowance by receiving a capital distribution/gift from the trust. The trust assets are/were in building society bonds which have/will mature soon. I am concerned that lending to the family may have some restriction. Also, can part of the trust assets be given as a gift/capital distribution to children of the settlors who are also trustees?
Good morningThank you for your message, I will do my best to help.The answer to the first part of your question as to whether a NRB discretionary trust can lend at commercial rates and to whom? If the wording of the Trust allows such scheme then yes, the Trust can lend at commercial rates to all the named beneficiaries. If the beneficiary is also a Trustee then yes they can also benefit. If the Trust does not allow such scheme, then check the Trust if there is a power for the Trustees to incorporate such power by deed. Ask a specialist Solicitor in Trust to draft the deed. The structure would be lending at commercial rate. Please note the the tax implication towards the Trust would be income tax would have to be paid on the interest receivable. In response to the last part of your question, as to whether part of the Trust assets can be given as a gift/capital distribution - yes only to beneficiaries however if a beneficiary and a Trustee is the same person then yes also. Trust assets can be appointed to the beneficiaries at the discretion of the Trustees. I hope that helps. Best of luck, Kind regardsKrystel*Please rate my answer so I can be credited for it.
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