Published on: 19th November 2018

Do you have a discretionary trust in your Will?

A discretionary trust is used to hold assets after you have passed away. A discretionary trust will name multiple possible beneficiaries that could inherit. The aim of the discretionary trust is to have control over who shall inherit from the trust and when.

Reasons you may wish to create a discretionary trust If you have vulnerable beneficiaries, you may not wish for them to be given a lump sum of cash but instead you may wish to give them a steady income to suit their needs. Similarly you may have a beneficiary who does not have the ability to look after large finances, who may not be able to save, and you do not wish for them to spend all their inheritance at once. Alternatively, you may wish to leave inheritance to an individual who has previously had alcohol or drug addiction and you are worried your inheritance will get spent on fuelling said addictions. A discretionary trust can be used to provide an income for an individual for the remainder of their life, but can protect the resultant fund for other beneficiaries.

What can be put into a discretionary trust? Most commonly, cash or liquid assets will be placed into a discretionary trust. However property can also be placed into the trust. There is no limit on the value which can be placed into a discretionary trust, but specialist advice should be taken to ensure there are no adverse tax consequences.

Who are your trustees? What do they do? You have the freedom to choose your trustees and they will be named in the Will. They will be responsible for maintaining the trust fund and ensuring the assets are being invested in the best way possible. They will be responsible for distributing funds out of the trust when necessary.

Have you written a letter to your trustees? As the discretionary trust will not denote when a beneficiary should inherit from the trust, nor does it state the percentages that each beneficiary should receive, the trustees must therefore use their discretion to release funds when they feel it is appropriate. This can be a daunting task as your trustees may not know your exact wishes, and they may not know if you wish for the beneficiaries to have an annual limit or if the funds should be used for educational purposes only until they reach a particular age. This is why we strongly recommend you write a letter to your trustees. The letter will be used by your trustees to guide them in the distribution of the assets held in trust. Such letters can make the role of being a trustee easier as they will have additional knowledge as to how you would want the assets given out and when. The letter should outline your personal wishes and the detail that you provide in the letter is your choice. You may expressly state when the trust fund should not be used or when it should. For example, you may state that the funds cannot be used for holidays or lavish spending trips. You may state that each beneficiary may only receive a certain amount of money per month or per year. You can note that an individual beneficiary should receive more than the others and that discretion may be used to ensure this individual beneficiary has everything they need to maintain a particular level of lifestyle.

If you would like to meet with one of our Consultants to discuss any of the issues raised in this article or any other Estate Planning topic please telephone 01732 868190 or click here.

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