Discretionary Trusts

What are discretionary trusts?

A discretionary trust gives the greatest flexibility to the people running it. This trust enables you to name several possible beneficiaries and leave your trustees the discretion as to who receives what, when they will receive it, and how they will receive it. This can be particularly useful if you have beneficiaries who are young, have with differing needs, suffer with alcohol, drug, or gambling problems or a beneficiary whose spouse you do not like.

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 payment for 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 three 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 or 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 they can also come with tax implications, meaning it is essential to seek professional advice from a wills and probate solicitor.

Discretionary trusts can be extremely complex and if written incorrectly can defeat the purpose completely and cause problems.

Our expert team of solicitors in Doncaster and Sheffield can assist you through this process.

For more information, click one of the links below or download one of our helpful guides.

Alternatively, give us a call on 01302 341414 (Doncaster) and 0114 272 1884 (Sheffield) and our friendly team will be happy to have a chat with you.

What other types of trust are available?

There are numerous types of trust available, the most common types are: