Writ­ing a Will to decide who receives which parts of your Estate when you pass away is stress­ful work. If you find your­self wor­ry­ing about how you can ensure your fam­i­ly will have finan­cial sta­bil­i­ty, then per­haps you should con­sid­er a Dis­cre­tionary Trust.

If you put Dis­cre­tionary Trusts’ into a search engine you’re pre­sent­ed with a num­ber of def­i­n­i­tions rid­dled with jar­gon, Our guide is a jar­gon free round up of Dis­cre­tionary Trusts.

What is a Dis­cre­tionary Trust?

A Dis­cre­tionary Trust is a legal agree­ment that is formed when you pass own­er­ship of an asset, for exam­ple a bank account or life insur­ance pol­i­cy to a group of peo­ple (known as Trustees), who then look after it in your place. You choose a num­ber of peo­ple to ben­e­fit from the Trust (known as Ben­e­fi­cia­ries) and the Trustees decide which Ben­e­fi­cia­ries will receive mon­ey from the Trust Fund and when they should receive pay­ment. A Dis­cre­tionary Trust can be set up imme­di­ate­ly (dur­ing your life­time) or by your Will (after you die).

Who is Involved in a Dis­cre­tionary Trust?

There are 3 peo­ple involved with this kind of trust:

  • o The Set­t­lor – The per­son that orig­i­nal­ly owned the assets placed into trust. Once an asset has been giv­en to a trust, the Set­t­lor no longer per­son­al­ly owns it and can then become a Trustee.
  • o The Ben­e­fi­cia­ry – (or Ben­e­fi­cia­ries) the peo­ple who are enti­tled to receive mon­ey from the Trust Fund in accor­dance with the terms decid­ed by the Settlor.
  • o The Trustees — Legal own­ers of the Trust Fund. They must act in the best inter­est of the Ben­e­fi­cia­ry or Ben­e­fi­cia­ries. When look­ing after the Trust Fund, they deal with the pay­ment arrange­ments for any claims made on the trust and decide which Ben­e­fi­cia­ry to pay, how much and when.

Why would you want a Dis­cre­tionary Trust?

There are sev­er­al advan­tages to using a Dis­cre­tionary Trust instead of or in addi­tion to a stan­dard Will. You get to retain con­trol over your funds because you choose who is enti­tled to the Trust Fund and know that the release of mon­ey will be con­trolled by some­body you trust. This is help­ful when leav­ing mon­ey to chil­dren because you are able to give them access to finan­cial sup­port, but ensure some of the funds are saved away for lat­er in their life when it may be of greater benefit.

If a Dis­cre­tionary Trust is set up dur­ing your life­time, pay­ments can be made to the Ben­e­fi­cia­ries as soon as the trust has been cre­at­ed. This means there are no delays in mak­ing pay­ments after you die. If you leave assets under a Will, your loved ones must usu­al­ly go through the Pro­bate process before they are allowed to deal with your pos­ses­sions. This can be a lengthy process and can cause unnec­es­sary stress dur­ing a time of grief. How­ev­er, by set­ting up a Dis­cre­tionary Trust dur­ing your life­time, you can ensure your loved ones have imme­di­ate access to a source of funds. This can avoid the finan­cial dif­fi­cul­ties asso­ci­at­ed with the Pro­bate process.

The mon­ey held in the Dis­cre­tionary Trust will not be part of your Estate for Inher­i­tance Tax pur­pos­es, so you can min­imise the amount of Inher­i­tance Tax you’re liable to pay. In terms of Inher­i­tance Tax, you would only be expect­ed to pay when:

  • o The Trust reach­es its 10 year anniversary.
  • o When you pay a part of your Estate into the Trust.
  • o When assets are trans­ferred out of the Fund, these are called Exit Charges.

While there are cer­tain­ly advan­tages to set­ting up a Dis­cre­tionary Trust, they can be dis­pro­por­tion­al­ly expen­sive to admin­is­ter. There are also Income Tax and Cap­i­tal Gains Tax issues to take into account.

Fun­da­men­tal­ly, you must eval­u­ate whether or not a Dis­cre­tionary Trust is the best option for you and your fam­i­ly because once the trust has been set­up, it can­not be undone.

To arrange a dis­cus­sion about a new or exist­ing Dis­cre­tionary Trust, please get in touch with Paul Clark on 01625 523988 or mail@​JBGass.​com