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What is a discretionary Will Trust?

If you are looking to provide for a group of people or there are specific reasons why you wouldn't want someone to inherit a gift outright, a discretionary Will trust may the solution.

Key Points:

• A discretionary trust gives no one person a right to the assets in the trust. This can be very powerful tax planning tool – especially for business owners and unmarried couples.

• Although your trustees have full discretion in operating the trust – you can leave them instructions in an ‘expression of wishes’ to provide them with guidance and an understanding of what you would have wanted.

• If you have a beneficiary who is disabled, then using a discretionary trust can benefit them without impacting on any financial assistance they receive from the state.

Why not leave an outright gift?

There are many reasons why it may be undesirable for you to leave assets directly to a beneficiary under your Will.

• You may be unsure of which beneficiary will need the money the most – for example you may wish to help your grandchildren with their education, but if one needs particular help or tuition, you may wish for them to receive a larger share of the gift.

• The beneficiary may be bankrupt or have a history of debt problems – leaving a gift to them outright might simply be swallowed up by creditors and not benefit them directly.

• The beneficiary may have a history of drug or gambling problems –giving them unfettered access to a large sum of money may do more harm than good.

• The beneficiary may be disabled and need assistance in managing their money. Equally, leaving them a gift may just reduce their entitlement to state benefits – so they may not see the full benefit of your gift.

• The person that you want to benefit may already have considerable assets. Any gift that you give them, would increase their potential inheritance tax bill.

A flexible solution

A discretionary trust is a flexible way of providing for a group of beneficiaries which often includes your surviving spouse or civil partner and other members your the family. The way the trust is written is entirely flexible and you choose the terms of the trust, who acts as a trustee and who the group of beneficiaries are to be.

The trust in your Will is then accompanied by a letter (an expression of wishes) from you explaining why the trust was set up how you had envisaged the assets in the trust would be used.

Unlike a life interest trust, no beneficiary of a discretionary trust is absolutely entitled to the trust property. It is at the discretion of the trustees to determine who should benefit from the trust and in what way. The trustees consider the financial and personal situation of each beneficiary and decide how they would benefit most from your Will.

For example, it might be more beneficial to pay someone’s mortgage or purchase gift vouchers rather than to give the money directly to the beneficiary. They can delay making payments to a bankrupt beneficiary or one going through a divorce.

Your trustees have the discretion to decide the age at which beneficiaries inherit – maybe delaying payments to a child who isn’t quite ready for the responsibility.

If you want to benefit someone in your Will, but have concerns over making that gift to them outright then including a discretionary trust could be the right option for you.

Taking time to talk through your specific situation and how you want your estate to be distributed is the best place to start. It's also important to understand how a discretionary Will trust is taxed. Please contact me if you have any questions or to book an appointment.