Discretionary Trusts

Discretionary Trusts

These trusts are the most flexible trusts you can create. Lifetime discretionary trusts should be restricted to the prevailing Inheritance Tax threshold to prevent an immediate tax charge. Discretionary trusts established in a Will can also be restricted or they can contain the entire estate.

Discretionary trusts have a unique Income Tax rate and a basic rate of Capital Gains Tax. They are subject to a valuation every ten years by HM Revenue & Customs at which point Inheritance Tax could be payable.

Trustees who look after the assets within the trust have a group of potential beneficiaries that can request funding and support. It is the job of the trustees to balance the competing interests of the beneficiaries in deciding whether they receive any assistance from the trust, whether they receive income or capital distributions, when funds are paid and how much is paid, if at all.

Simply because someone is named as a beneficiary of the trust they do not have a right to the trust assets. The preparation of Letters of Wishes to sit alongside the trust and provide guidance to the trustees are essential.

Assets within the trust are separate to the estates of the potential beneficiaries. Therefore discretionary trusts provide a good way of protecting assets for vulnerable beneficiaries, passing assets to younger generations and protecting assets for care fee purposes.