WHAT IS A DISCRETIONARY TRUST?


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WHAT IS A DISCRETIONARY TRUST?


TYPES OF TRUSTS There are different types of Discretionary Trusts that can be used. These include Life Interest Trusts, Property Will Trusts and Discretionary Trusts.

DISCRETIONARY TRUST Setting up a Discretionary Trust in a will can be a useful way of protecting assets. The most common way would be to create a will which includes a Discretionary Trust specifically in relation to your assets.

WHAT IS A DISCRETIONARY TRUST? A Discretionary Trust is a trust where you appoint trustees who will then be able to exercise their discretion about how to use the income of the trust, and on occasions, the capital. Creating a Discretionary Trust in your will can offer a number of useful advantages which are set out below.

WHAT IS THE EFFECT OF A DISCRETIONARY TRUST? If you create a Discretionary Trust, then your trustees become the legal owners of your estate assets including savings and property. These assets are held in trust and become known as ‘trust property’.

Your trustees would be responsible for handling the trust for the benefit of your beneficiaries. The trustees also have a ‘discretion’ about how to use and apply the trust’s income including an ability to “accumulate” income by adding it to the capital.

Your trustees can also have discretion about how to distribute the trust’s capital. Depending on the terms of the Discretionary Trust your trustees can have a wide discretion to decide how much to pay out and who to pay it to and when any payments are made and whether to impose any conditions as well.

BENEFITS OF A DISCRETIONARY TRUST The great thing about setting up a Discretionary Trust in a will is that you can pretty much guarantee that most of your assets can be protected and ring fenced for various reasons. These could include:

Provide for Children/Grandchildren – Making provision for children or grandchildren.

Protect a Vulnerable Beneficiary – Ensuring that a vulnerable person is properly protected. A vulnerable person could include somebody who is lacks the physical or mental capacity to look after their own affairs or beneficiaries who might be struggling financially or are facing bankruptcy. You can ensure that your trustees provide vulnerable beneficiaries with assistance in the handling and management of their inheritance.

Residential Care Fees Protection – Helping to prevent a property from falling into the hands of the Local Authority if you should go into residential care.

Welfare Benefits Protection – Protecting a beneficiaries’ entitlement to Social Security and State Benefits and preventing them from losing those benefits if they become entitled to an inheritance from an estate.

Unmarried Couples – Helping unmarried couples with Inheritance Tax Planning.

MAKE A DISCRETIONARY TRUST WILL NOW This will is suitable for a person who is married or in a civil partnership and wishes to create a discretionary trust for one of the following reasons:

1. To try and avoid a local authority using a share in the home to cover the cost of long term medical or nursing care for the surviving spouse/civil partner or

2. To ensure that gifts intended for children/grandchildren from a former relationship are received by them, without the danger of the surviving spouse/civil partner reducing the amount that goes to them.

In addition, the document will allow you to make as many gifts of money and specific items you would like. You will be able to leave the remainder of your estate after making gifts (i.e. the residuary estate) to as many persons you would like, either in equal shares or in varying percentages.

You can also vary how you would like to leave your residuary estate, make provisions for the care of pets and appoint guardians for your children. (Those with spouses/civil partners domiciled outside the UK should note the normal tax-free allowances do not apply, and we recommend tax advice is sought in these cases).

This document is only suitable for use in England & Wales, and Northern Ireland.