Wills and Probate

Discretionary Trusts

Discretionary Trusts are so called because no beneficiary has a fixed entitlement. The trustees, who are usually (but not always) the same persons as the executors, have complete discretion to decide what, if any, benefits should be given to each of the beneficiaries. The trustees are given powers of appointment which enable them to pay capital and income to one or more beneficiaries or to create new trusts for their benefit.

The class of possible beneficiaries can be as wide or narrow as the person making the Will, known as the ‘testator’, chooses. The testator may give the trustees power to nominate or to exclude beneficiaries. Not all of the beneficiaries need to be in existence when the Will is made, or when the trust takes effect on the death of the testator.
The trustees will normally be given power not only to distribute income but, instead, to accumulate it as an addition to the capital of the trust.

Before the introduction of a transferable Inheritance Tax (‘IHT’) nil rate band between spouses, Discretionary Trusts were frequently incorporated in Wills in order to make use of the nil rate band available on the first death. Such trusts are now less likely to be used for that purpose, but can have advantages in certain situations such as setting up a trust for a disabled or vulnerable person.

The main advantage of Discretionary Trusts is where flexibility is required. For example:

1.     The testator may not have decided who should eventually take the assets or in what     proportions.

2.    The testator may require flexibility in case he fails before death to review his Will,     in the light of changing tax and personal circumstances, or becomes unable to do     so.

3.     The testator may not want his detailed wishes regarding his estate to be of          public knowledge after his death.

In conclusion a Discretionary Will Trust may be suitable for a testator who wishes to leave assets for the future benefit of a number of potential beneficiaries, with maximum flexibility as to the manner in which the income and capital are distributed.

If you have any queries about this article, please contact the Private Client Team at our South Street Office on 01243 790532.