A discretionary trust generally gives your trustees freedom to distribute the capital and income of the trust to a range of potential beneficiaries (called 'discretionary beneficiaries') as, when and if they see fit. This type of trust is most commonly used for tax purposes or where flexibility is needed.
You can list the potential beneficiaries yourself and, if you wish, give your trustees power to add further beneficiaries if and when they deem that appropriate.
Do I want one?
You might use this type of trust as part of an inheritance tax scheme which can save many thousands of pounds and thereby protect assets for future generations. These arrangements can be put in place as part of your lifetime tax planning measures or after your death.
Wansbroughs can explain your options, set up a trust and help you with its administration.
Guiding your trustees
You can provide written guidance to your trustees in the form of a 'letter of wishes' and change this as often as you wish without the need to alter the trust document or your will. This means you can give your trustees a clear understanding of your intentions and explain how you hope the trust will operate. Such wishes act as guidance for the trustees and are not legally binding.
Should you consider a discretionary trust?
If any of the below explains your position then speak to us for advice on a discretionary trust.
As part of your estate planning you may want to make a gift into a discretionary trust. It may be possible to make a gift of an asset with an inherent gain into a trust and 'holdover' any capital gains tax. We can advise you on tax effective gifts into trust.
If you own business or agricultural property you may wish to consider a discretionary trust to ensure that you maximise the tax reliefs available to you.
If you have a complex estate, with a variety of assets, a Will incorporating a discretionary trust allows you to choose executors/trustees who then have flexibility to make decisions after your death taking into account the tax, personal and other considerations at that time.
If you or your spouse has been previously widowed, a discretionary trust can provide inheritance tax savings opportunities which may otherwise be lost. Speak to us for more information.
If one or more of your potential beneficiaries is in receipt of means tested benefits then a discretionary trust might be the route to ensure that their benefits are not jeopardised by your gift.
If you have complex family relationships, or have not yet decided how to balance the distribution of your estate, you may want to consider incorporating a discretionary trust into your Will. This gives your executors/trustees flexibility to decide on the distribution of your estate, taking into account any claims that relatives may have, after your death.
A discretionary trust can be used to protect a vulnerable or spendthrift beneficiary from financial abuse or from themselves. The trustees can use their powers to ensure that such a beneficiary is adequately provided for without necessarily allowing direct access to large sums of money.
If one of your beneficiaries is suffering a relationship breakdown, a discretionary trust may offer a route to ensuring your assets are retained for the people you want to benefit, rather than lost in a divorce settlement. The rules relating to this can be complex so legal advice should be sought, you cannot use a trust simply to avoid assets being taken into account in any financial settlement.