Discretionary Trust
What are the benefits?
As the settlor, you give the trustees discretion as to how, when, and for whose benefit some or all the capital and income are used.
As the settlor, you may feel it inappropriate to leave your beneficiary in control of the funds;
As well as being a very flexible form of Trust, Discretionary Trusts are also advantageous because the assets remain outside the beneficiaries’ estates for Inheritance tax purposes and are therefore not included in calculating means-tested benefits. Discretionary trust assets and income are also protected from distribution on divorce.
As well as being a very flexible form of Trust, Discretionary Trusts are also advantageous
Because the assets remain outside the beneficiaries’ estates for Inheritance tax purposes and are therefore not included in calculating means-tested benefits. Trust assets and income are also protected from distribution on divorce.
How Does It Work?
In a discretionary trust, the settlor – the person who sets up the trust – outlines general guidelines on how they wish the trust to be managed. However, the trustees have the authority to make decisions about the distribution of assets. This can be particularly useful in cases where beneficiaries’ needs may change over time, such as providing for education, health care, or other unforeseen needs.
Key Advantages
- Flexibility: Trustees can respond to beneficiaries’ changing needs, ensuring that the trust funds are used in the most effective way possible. This flexibility can provide peace of mind to the settlor, knowing that their intentions can be met even if circumstances change.
- Asset Protection: Assets held in a discretionary trust are safeguarded from creditors and legal claims against beneficiaries. This protection can be crucial for beneficiaries who might face financial difficulties or other challenges.
- Tax Efficiency: By placing assets in a discretionary trust, the settlor can potentially reduce the inheritance tax liability on their estate. This can help to preserve more of the estate’s value for future generations.
Who Should Consider a Discretionary Trust?
A discretionary trust is particularly suited for those with complex family situations or where beneficiaries’ circumstances might change over time. For example, if you have children or grandchildren with varying financial needs, or if you want to provide for future generations while retaining control over how and when funds are distributed, a discretionary trust can be an excellent solution.
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