A Discretionary Trust is one which gives the greatest flexibility as possible to the people running it.
A Discretionary Trust is a flexible trust which enables you to name several possible beneficiaries and leave your Trustees the discretion as to who receives what, when and how. This can be a very useful tool if you have beneficiaries who are young, or beneficiaries with differing needs, a beneficiary who has alcohol, drug or gambling problems, a beneficiary whose spouse you do not like… the list goes on.
Within a Discretionary Trust, your trustees can decide whether anyone should receive the money and when. The Trustees have the discretion to pay income to beneficiaries or to delay any payments for a number of years (up to a maximum of 125 years).
An example of this would be to say:
“I give my Trustees the sum of Twenty Thousand Pounds to distribute between such of my grandchildren as my Trustees shall in their absolute discretion decide”.
If there were 3 grandchildren, A, B and C then the trustees can do whatever they want - A could have all £30,000 with B and C receiving nothing.
Some people like these trusts as they enable the trustees to take into account an individual's circumstances at the time of distribution and see who actually needs what. As the Trustees have complete discretion nobody can demand their share of the trust. It is common for a letter of wishes to be left with this type of trust to give guidance to the trustees as to what factors they should take into consideration – for example, who is earning good money, has behaved well etc. However, this letter of wishes is only a wish and not legally binding.
A Discretionary Trust can be set up during a lifetime of in a Will depending on your specific circumstances and what you aim to achieve. However, there are very complex rules as to lifetime trusts and there can be tax implications of lifetime trusts so it is essential to ensure professional advice is taken.
A Discretionary Trust can also be a way of safeguarding assets for future generations. You may write your Will at the age of 60 when you have children in their 30's and very young grandchildren. However, if you died at the age of 90 then your children in their 60's may be very comfortable and not require the inheritance. Instead, your trustees could use their discretion to allow the monies to skip the older generation and pass to the grandchildren and even pass tax-free.
Discretionary Trusts can be extremely complex and if written incorrectly can defeat the purpose completely and cause problems.
Trusts can be very complex documents but can also be essential in order to ensure that the best possible solution is offered to all your concerns. It is essential to take professional advice before entering into a trust as there can be tax implications of placing assets within trusts.
Our expert team, based in Doncaster and Sheffield, can assist you through this process.
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There are numerous types of trust available, the most common types are: