Under a Discretionary Trust, you are able to protect your funds in the many different ways set out below. Your trustee is also afforded a great deal of flexibility, having discretion as to who benefits (from a named class of potential beneficiaries) and what share each beneficiary should take.
This is useful, for example, if you have identified a particular group of people that you would like to benefit, but are unsure which of them will need financial help in the future and in what proportions. You can include a non-binding letter of wishes to guide your trustees as to how they might exercise their discretion.
Why make a Discretionary Trust within your will?
Protection of Funds
The funds within the trust are protected. Some examples of how this is useful are set out below. You can:
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Exercise control over young and financially irresponsible beneficiaries.
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Protect beneficiaries against creditors in the event of a beneficiary’s bankruptcy.
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Provide for vulnerable or disabled beneficiaries who are unable to manage their own property, without prejudicing means-tested benefits.
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Provide for beneficiaries who may have an an alcohol, drug or gambling addiction or are otherwise not in a stable situation.
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Protect assets on the first death from nursing care fees should your surviving partner require this in the future.
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Protect assets should your surviving spouse exhaust the funds or leave everything to someone else, contrary to your wishes.
Flexibility
A Discretionary Trust allows the trustees to adapt to the changing needs of your family. For example:
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One of your children may be financially independent but the other may be very young and still be at school.
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A child may have special needs and require someone else to manage funds on their behalf.
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One of your children's welfare payments may be jeopardised by a lump sum gift if you were to leave assets directly to them. Leaving them funds via a trust usually prevents this from happening.
Inheritance Tax Mitigation
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For some people, a Nil Rate Band Discretionary Trust can still be beneficial. This may assist you if:
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Your combined estate is likely to exceed the current Residence Nil Rate Band threshold of £2m.
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Are a business owner or farmer wanting to preserve your Business Property Relief (BPR) or Agricultural Property Relief (APR).
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Widow or widower seeking to maximise your available nil rate band.
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Someone who has assets, the growth in value of which is likely to exceed the nil rate band.
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Inheritance Tax can also be minimised where assets amount to less than the your combined Nil Rate Bands and Residence Nil Rate Bands.
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Lifetime gifting can reduce your estate below the various thresholds.
Please contact me if you are considering the inclusion of a Discretionary Trust in your will.