When it comes to estate planning, choosing the right type of trust can be crucial in ensuring your assets are managed and distributed according to your wishes. Among the various types of trusts, discretionary trusts and revocable trusts are two popular options. At Blackstone Solicitors, we help clients across England and Wales understand the differences and benefits of these trusts, enabling them to make informed decisions.
Please click here to find out more about our Wills, Trusts and Lasting Power of Attorney Services.
Free Initial Telephone Discussion
For a free initial discussion on how we can help you deal with the legal implications of creating a Trust, get in touch with us today. We are also experienced in dealing with all aspects of Wills and Probate and we will review your situation and discuss the options open to you in a clear and approachable manner. Early expert legal assistance can help ensure you avoid the stress of dealing with these issues on your own. Simply call us on 0345 901 0445 or click here to make a free enquiry and a member of the team will get back to you.
Understanding Discretionary Trusts
A discretionary trust is a legal arrangement where trustees hold and manage assets on behalf of a group of beneficiaries. The key feature of a discretionary trust is that the trustees have the discretion to decide how and when the assets are distributed to the beneficiaries, based on guidelines set out in the trust deed.
Benefits of Discretionary Trusts
Flexibility
Discretionary trusts offer significant flexibility to meet the changing needs of beneficiaries. Trustees can allocate funds based on each beneficiary’s circumstances, ensuring that support is provided when it is most needed.
Asset Protection
Assets held in a discretionary trust are generally protected from creditors and legal claims against the beneficiaries. This level of protection can be especially beneficial for those who may face financial difficulties or legal challenges.
Tax Planning
Discretionary trusts can be used for strategic tax planning, allowing trustees to manage distributions in a way that minimises tax liabilities. It is essential to seek professional advice to ensure compliance with current tax laws and maximising tax benefits.
Understanding Revocable Trusts
A revocable trust, also known as a living trust, is a legal arrangement where the grantor (the person who creates the trust) retains the ability to alter or revoke the trust during their lifetime. The grantor typically acts as the initial trustee, managing the assets within the trust, and names a successor trustee to take over upon their death or incapacity.
Benefits of Revocable Trusts
Control and Flexibility
Revocable trusts offer the grantor control over the trust assets during their lifetime. Since the trust can be amended or revoked, the grantor can adapt to changing circumstances and revise the terms as needed.
Avoidance of Probate
One of the main advantages of a revocable trust is that it allows the grantor’s estate to bypass the probate process. This can save time, reduce legal fees, and maintain privacy as the trust does not become a matter of public record.
Continuity of Management
In the event of the grantor’s incapacity or death, the successor trustee can seamlessly take over management of the trust assets. This ensures continuity and avoids potential disruptions in asset management.
Key Differences Between Discretionary Trusts and Revocable Trusts
Control and Flexibility
While both types of trusts offer flexibility, the control dynamics differ. In a discretionary trust, the trustees have the discretion to manage and distribute the assets based on the beneficiaries’ needs, as per the trust deed. In a revocable trust, the grantor retains control over the assets during their lifetime and can make changes as they see fit.
Asset Protection
Discretionary trusts provide greater asset protection compared to revocable trusts. Since the beneficiaries of a discretionary trust do not have a fixed entitlement, the trust’s assets are generally safeguarded from creditors and legal claims. In contrast, assets in a revocable trust are not protected from the grantor’s creditors during their lifetime, as the grantor retains control.
Tax Planning
Both types of trusts can offer tax planning benefits. However, discretionary trusts often provide more opportunities for strategic tax planning due to the flexibility in managing distributions. Revocable trusts may offer limited tax advantages during the grantor’s lifetime, as the assets are still considered part of the grantor’s estate.
The avoidance of probate is a significant advantage of revocable trusts. Assets held in a revocable trust can be transferred to beneficiaries without going through the probate process, saving time and legal costs. Discretionary trusts do not automatically avoid probate, but proper planning can help mitigate probate-related issues.
Considerations for Choosing Between Discretionary Trusts and Revocable Trusts
- Purpose and Goals: Determine what you aim to achieve with the trust. If asset protection and flexible support for beneficiaries are your primary goals, a discretionary trust may be more suitable. If maintaining control over your assets during your lifetime and avoiding probate are your priorities, a revocable trust might be the better choice.
- Beneficiaries’ Needs: Consider the specific needs of your beneficiaries. Discretionary trusts can be beneficial if your beneficiaries’ needs are likely to change over time. Revocable trusts allow for smooth transitions in asset management, which can be important if you anticipate potential incapacity issues.
- Tax Implications: Both types of trusts have different tax implications. Seeking professional advice is crucial to understanding the tax benefits and responsibilities associated with each option and ensuring compliance with tax laws.
- Complexity and Costs: Setting up and managing a discretionary trust can be more complex and costly compared to a revocable trust. Weigh the costs and benefits of each option to determine which fits your situation.
Conclusion
Both discretionary trusts and revocable trusts offer unique benefits and serve different purposes. At Blackstone Solicitors, we are dedicated to helping you navigate these options to make the choice that best aligns with your estate planning goals. Whether you opt for the flexibility and protection of a discretionary trust or the control and probate avoidance of a revocable trust, our experienced solicitors are here to provide expert guidance.
How we can help
We have a proven track-record of helping clients create Trusts. We are a multidisciplinary firm and have all the expertise inhouse to satisfy the most exacting requirements of our clients. We will guide you through all the necessary legal due diligence in a comprehensive and timely manner. We firmly believe that with the right solicitors by your side, the entire process will seem more manageable and far less daunting.
How to Contact Our Wills and Probate Solicitors
It is important for you to be well informed about the issues and possible implications of creating a Trust. However, expert legal support is crucial in terms of ensuring your wishes are met as you would want them to be.
To speak to our Wills and Probate solicitors today, simply call us on 0345 901 0445, or click here to make a free enquiry. We are well known across the country and can assist wherever you are based. We also have offices based in Cheshire and London.
Disclaimer: This article provides general information only and does not constitute legal advice on any individual circumstances.
Comments are closed.
