A discretionary trust gives trustees the authority to determine the amount and timing of distributions to beneficiaries. The distribution of all capital and income is entirely at their discretion. This allows for greater flexibility and asset protection in the event of a change in circumstances. In this article, what is a Discretionary Trust, we take a look at these issues in more depth.
Please click here to find out more about our Private Client services
Free Initial Telephone Discussion
For a free initial discussion with a member of our New Enquiries Team, get in touch with us today. We are experienced in dealing with all the legal aspects of Discretionary Trusts and once instructed, 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 are on the best possible footing from the start and also 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.
When Can A Discretionary Trust Be Established?
You can establish it during your lifetime, or you can include it in your Will to take effect after your passing. If you establish it while you are still living, it may be subject to inheritance tax if you die within seven years. Any lifetime donation into trust that exceeds the £325,000 inheritance tax threshold is subject to a 20% levy although it may be possible to take advantage of additional tax relief.
Why establish a discretionary trust?
A person may choose to include a discretionary trust in their will for a variety of reasons. Discretionary trusts can be utilised to provide for individuals who are deemed vulnerable due to a handicap or illness, or because they may be subject to pressure from others if they were to receive the money outright.
Discretionary trusts normally have a duration of up to 125 years from the date of the decedent who created the will (the testator). Providing the will grants the trustees the authority to do so and there are sufficient assets remaining in the trust, this can allow future generations to profit from the trust property who would not have otherwise inherited.
The person establishing the trust in their will can have peace of mind knowing that the assets will be managed in their absence by a trustee of their choosing, who can consider what they would have done if they were still alive, as well as the beneficiary and their lifestyle, when determining how best to distribute the trust funds. This is especially useful for bigger estates, where assets can be distributed over a number of years so that monies are accessible to assist potential heirs throughout their various life phases.
What are the benefits of a discretionary trust?
There are numerous benefits associated with discretionary trusts, including:
Control and adaptability – the trustees have the ability to tailor disbursements to the needs of the beneficiaries.
Asset protection — assets kept by a discretionary trust do not belong to the beneficiaries, allowing riches to be passed on to future generations.
Preservation of benefits – having assets in a discretionary trust can allow vulnerable beneficiaries to retain their benefits, which is particularly important if receiving the inheritance outright would put them in a worse financial position.
Long-term tax reasons – they can be used to preserve potential inheritance tax reliefs, such as business and agricultural property relief.
What are the disadvantages of a discretionary trust?
The use of discretionary trusts can present a number of possible complications, including:
loss of control – trustees have the final say over who receives what and when, and they can ignore the testator’s wishes
Family feuds – there may be beneficiaries who feel aggrieved that they have not been left anything outright, which could result in potential claims against the testator’s estate
Cost – discretionary trusts can be expensive to operate due to ongoing fees for professional advisors, tax, and out-of-pocket expenses incurred by the trustees.
Responsibility – for the trustees; discretionary trusts can be a huge administrative and emotional responsibility due to ongoing record keeping and submission of tax returns and navigating relationships with the potential beneficiaries can be challenging.
Potential loss of the residence nil rate band – if the deceased’s estate is taxable and the residue has been left in a discretionary trust rather than to direct descendants, the residence nil rate band will be lost and considerably more inheritance tax will be payable unless the trustees take appropriate advice regarding appointing the property out of the trust within 2 years from the date of death
How we can help
We have a proven track-record of advising upon all aspects of private client work. We will guide you through the process and ensure all checks are carried out swiftly and efficiently and we firmly believe that with the right solicitors by your side, the entire process will seem more manageable and far less daunting.to incorporate, what kind of ownership
How to Contact Our Private Client Solicitors
It is important for you to be well informed about the issues and possible implications of setting up a Discretionary Trust. However, expert legal support is crucial in terms of ensuring a positive outcome to your case.
To speak to our Trust 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.
Comments are closed.
