Estate planning involves thoughtful decisions about how your assets will be distributed after your passing. While a simple Will may seem sufficient, more sophisticated options exist to ensure your wishes are fulfilled and your beneficiaries are adequately provided for. Two such options are Discretionary Trusts and Spendthrift Trusts, each with distinct characteristics and benefits. This article will explore these two types of trusts, highlighting their key differences and helping you understand which option may be best suited for your individual circumstances.
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.
Discretionary Trusts
A Discretionary Trust is a legal entity that holds assets on behalf of beneficiaries. Unlike a Will, which typically dictates specific inheritances, a Discretionary Trust grants your chosen trustees broad powers to decide how and when to distribute the trust assets.
Key Features of Discretionary Trusts:
- Flexibility: Trustees have significant discretion in deciding how and when to distribute income and capital to beneficiaries. This flexibility allows for a tailored approach to estate distribution, considering the changing needs and circumstances of beneficiaries.
- Protection: Assets held within a Discretionary Trust offer some protection from the claims of your children’s creditors, providing a layer of protection for your beneficiaries.
- Tax Planning: Depending on the structure of the trust, there may be opportunities to mitigate inheritance tax liabilities.
- Succession Planning: Discretionary Trusts can be an effective tool for succession planning, particularly for family businesses.
Spendthrift Trusts
A Spendthrift Trust is a specific type of Discretionary Trust designed to protect beneficiaries from their own financial mismanagement. It restricts the beneficiary’s ability to access the trust funds directly, typically by:
- Prohibiting the beneficiary from assigning their interest in the trust: This prevents the beneficiary from selling or transferring their rights to receive trust distributions.
- Restricting creditor access to trust funds: Creditors generally cannot attach or seize trust assets to satisfy debts owed by the beneficiary.
Key Features of Spendthrift Trusts:
- Stronger Protection: Spendthrift Trusts offer significantly stronger protection for beneficiaries from creditors and their own potential financial mismanagement compared to standard Discretionary Trusts.
- Limited Beneficiary Control: Beneficiaries have limited control over the distribution of trust funds, which can be beneficial in cases where they may struggle with financial responsibility.
- Suitable for Specific Circumstances: Spendthrift Trusts are particularly suitable for beneficiaries who may have a history of financial difficulties, substance abuse, or other challenges that could lead to the mismanagement of assets.
Discretionary Trusts vs. Spendthrift Trusts
- Level of Control: Discretionary Trusts provide trustees with broad discretion in distributing funds, while Spendthrift Trusts further restrict beneficiary access to the trust assets.
- Protection: Spendthrift Trusts offer significantly stronger creditor protection than standard Discretionary Trusts.
- Suitability: Spendthrift Trusts are most appropriate for beneficiaries who may struggle with financial responsibility or who require a high level of protection from creditors.
Important Considerations:
- Legal and Tax Implications: The legal and tax implications of Discretionary Trusts and Spendthrift Trusts can be complex. It is crucial to seek professional legal and tax advice to understand the potential consequences of each option.
- Ethical Considerations: While Spendthrift Trusts can offer valuable protection, it is important to consider the potential impact on the beneficiary’s independence and personal development.
- Trust Administration: Both Discretionary Trusts and Spendthrift Trusts require careful administration. It is essential to appoint responsible and trustworthy trustees who will act in the best interests of the beneficiaries.
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.
