Discretionary Trusts

• This is a type of Trust where the trustees are given complete discretion to pay or apply the income or capital of the assets for the benefit of one or all of the beneficiaries. 

 

• They have control over how much to distribute at any given time, when to do so and who to make them to. 

 

• No particular beneficiary has an interest in the Trust or an entitlement to the funds – they only have a potential interest until the trustees choose to distribute in their favour. 

 

• The letter of wishes which accompanies your Will provides guidance to your trustees about how you would like the assets to be dealt with. This is not a legally binding document and the trustees can choose to use their own discretion as to how the assets are distributed depending on the circumstances at the time. 

 

• The main benefit of this Trust is that it will protect any beneficiary that is financially unstable 

 

• The money can be given to any such beneficiary as and when they require it and the trustees can refuse a request for money if they feel it is unwise or unsafe to release it. 

 

• The trustees can arrange to pay for things on behalf of the protected beneficiary straight from the Trust rather than handing money over to them. 

 

• A Discretionary Trust requires a minimum of two beneficiaries but if it is designed to only protect one of those beneficiaries, the trustees can choose to distribute some assets to the other beneficiaries immediately once the Trust is set up. 

 

• It can last for a maximum of 125 years but can end earlier where all of the beneficiaries have passed away or where the trustees decide to wind down the trust and distribute the assets. 

 

• If the Trust assets exceed the Inheritance Tax threshold (currently £325,000), then it will be subject to taxation in the form of anniversary and exit charges.