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In a Discretionary Trust the ‘trustees’ are the legal owners of the relevant assets. The Trustees have ‘discretion’ about how to use the income received by the trust. They may also have discretion as to how to distribute the trust’s capital. The Beneficiaries do not have a fixed right to any particular share of the trust fund. The Trustees have discretion as to:-

  • How much is paid out; and
  • To which of the beneficiaries payments are made; and
  • How often the payments are made; and
  • What, if any, conditions to impose on the recipients.

Discretionary Trusts have a number of uses:-

  • Protection of assets from third parties (divorce; bankruptcy; care-home fees are typical examples)

Where there is a discretionary trust in place it is impossible to identify any part of the trust assets as being attributable to any particular individual as the trust is distributed to a number of beneficiaries at the discretion of the trustees. If a Beneficiary is declared bankrupt, the trust fund is not available to the creditors. In a divorce, it is more difficult but not impossible for the assets in a Discretionary Trust to be included in the matrimonial pot. The assets will not usually be taken into account in assessing a Beneficiary for means tested benefits or state-funded residential care.

  • Inheritance tax planning.

The fact that a discretionary trust makes it difficult to establish any part of a trust fund as part of an individual’s estate means that the assets in a Discretionary Trust cannot be assessed as part of an individual’s estate for inheritance tax. A discretionary trust is therefore extremely useful for undertaking inheritance tax planning for the beneficiaries. Discretionary Trusts are subject to certain tax charges during their existence, but they can be managed so that tax liabilities are low or nil, depending on the value of assets in the trust fund.

At Kew Law we have the knowledge and the experience to offer you advice in relation to Discretionary Trusts giving you the peace of mind that your loved ones will not suffer financially due to a failed relationship, a troubled lifestyle, an unfortunate disability, or simply from being taken advantage of by others.

Please call our mobile friendly number on 033 33 22 1000 or 0800 9878156 or send us a message for further information.

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