Wills – what is a Discretionary Trust?
Share this article...
Discretionary trusts can be both ‘inter vivos’ (during our lifetime), and in our Wills.
In simple terms, a discretionary trust in our will leaves the decision making as to who gets what and when to the appointed trustees, rather than us making the decision ourselves at the point at which we make our will. So, why might we want to do that? And, what are the pros and cons or including a discretionary trust in our will?
Who can be a Beneficiary of a Discretionary Trust?
The beneficiaries of a discretionary trust can include:
- Named individuals
- Groups of people (known as a ‘class’) – eg ‘my grandchildren’
- Charities and other organisations
Who can be a Trustee?
A discretionary trust devolves considerable power and responsibility upon your chosen trustees, and so you should choose carefully. Be sure they have the time, inclination, and correct skill set. They should be over 18, and (of course) of sound mind. They should have no ‘conflict of interest’.
Can a Beneficiary also be a Trustee?
Technically yes, a beneficiary can be a trustee. However, you run the risk of creating a conflict of interest, and/or questioning the true ‘discretionary’ nature of the trust.
As a minimum matter of ‘good practice’ you should ideally ensure that if a beneficiary is a trustee, there is one other trustee that is not.
Why would I want a Discretionary Trust in my Will?
There are perhaps two broad reasons that will often leave testators wanting to include a discretionary trust in their wills. It is often/usually to provide protection of:
- the beneficiaries; and/or
- the assets
So, perhaps one or more beneficiary is disabled, or is simply not very good at managing things like money. Perhaps they have personal difficulties that an outright inheritance might exacerbate (for example addiction). A discretionary trust may in those circumstances help protect the beneficiary.
But, you may also want to protect assets. So for example, testators may choose to leave some or all of their residuary estate where a beneficiary is in the throws of divorce, or business problems. In those cases, the assets might be protected against divorce proceedings/bankruptcy.
You may also wish to protect against dwindling assets where there is a surviving spouse who may need care (care fee planning).
A complex area, but discretionary trusts can be useful in Inheritance Tax (IHT) planning – particularly where there is considerable wealth involved.
What are the downsides of a Discretionary Trust?
The two obvious downsides are perhaps:
- expense – both at the time of making your will, and during the period of administration
- complication – are you sure you want to remove the freedom of an outright gift to someone, and instead leave beneficiaries beholden to trustees?
Can I provide my Trustees with guidance on what I would like?
Yes! Indeed, it is encouraged if you decide to have a discretionary trust that you leave your chosen trustees with clear guidance on the broad things you would like to happen. It is important that you do not seek to bind the trustees, as this may undo the ‘discretionary’ nature of the trust. You can include a ‘letter of wishes’ which sets out just that – your wishes!
What is a Discretionary Trust of Chattels?
A common drafting technique in wills is to create a ‘mini’ discretionary trust over personal items (chattels), and then rely on a letter of wishes setting out who you would like to get what. This provides the flexibility of not having to update your will if your wishes change (you just update your letter of wishes).
You probably wouldn’t even notice that the clause to achieve this is a ‘mini’ trust. They can look as simple as something like this:
“I ASK that my Trustees distribute my personal belongings in accordance with any wishes that I have made them aware of
What type of Will Trusts are there?
The most commonly used will trusts include:-
- Life Interest Trust (otherwise known as an interest in possession trust)
- Discretionary Trust
- Absolute Trust (also known as a bare trust)
Free Legal Guides
We hope you have found this guide helpful. We have tonnes more info on our site on everything from wills, to lasting powers of attorney, to conveyancing, to employment law! Do remember that the guides are just that, and they (and any comments) should not be taken as legal advice specific to you. That’s where our expert solicitors come in! So, if you need help – do reach out. You can call us, fill in our contact form, or email.
Leave A Comment