Most family trusts are set up using some form of Discretionary Trust (“DT”), although depending on circumstances and intentions of the Settlor other types of trust could be used. A DT can be used as a home for any amount of money or value (e.g. an art work, gold coins et cetera). Although normally you would need to be moving in excess of £50,000 into the trust to make it worthwhile paying the set up fees, this does vary depending on how complicated the trust is; many people who settle Family Trusts do put in less than £50,000 – it all depends on circumstances and intentions and that’s why we provide a completely free initial consultation in which we can tell you if in your case setting up a DT is worthwhile or not. Of course, you could also put your entire estate (property, cars, savings, investments, et cetera) into trust. Putting your estate into a trust enables your appointed Trustees to distribute your assets to your beneficiaries, at such time the Trustees see fit.
If you choose to set up a DT, you are enabling your chosen Trustees to handle your estate and decide with their best judgement, how, when and who to distribute it to. This is one example of a Trust that you can set up in partnership with your Will, and it's a popular and flexible way of leaving assets to your grandchildren and protecting your wealth for future generations.
Setting up a DT does call for specialist legal and tax knowledge and one of our specialists will use their expertise to ensure you are fully appraised of the implications. A DT will need the ongoing support of a qualified (preferably chartered) accountant. If you have an accountant already we will be happy to work with your existing accountant regarding the taxation aspects; if you don’t have an accountant, we will be happy to introduce you to one from our panel.
How Does a DT Work?
In England and Wales, a DT can be set up by a single person or by a couple, who are referred to as the Settlor or Settlors. The settlor(s) then appoints two or more Trustees to handle the estate’s assets for whatever number of beneficiaries they see fit.
You can set up a DT during your lifetime, or you can include it in your Will, so that in the event of your death, your wishes are carried out in the manner you wanted.
The Settlor(s) will prepare a Letter of Wishes with our guidance alongside their Will. This is basically your directions to your appointed Trustees, instructing them when and how your beneficiaries should receive the assets. A Letter of Wishes, though, is not a legally binding document, and your Trustees are not legally bound to follow the instructions laid out therein. They can still act at their discretion based on the changing circumstances life may dictate, for example, if they decide that a beneficiary is not yet mature enough to receive the assets.
Why is a DT Useful?
A Discretionary Trust can be useful in many ways, such as:
You might be unsure how you want your wealth to be distributed between groups of beneficiaries after you die because some of the beneficiaries are currently very young. Leaving this decision up to people you trust can be helpful.
You may have a beneficiary who is in receipt of means-tested benefits. Leaving assets in a Discretionary Trust means such a beneficiary can benefit from the Trust, as and when the Trustees deem this appropriate, without losing their entitlement to benefits.
You may have a beneficiary who cannot manage their own financial affairs. Leaving assets to them in a Discretionary Trust rather than outright can help circumvent the need to get a Deputy appointed to manage an inheritance received.
A DT offers protection from creditors, meaning assets cannot be taken from a beneficiary in the event of their bankruptcy.
It can provide a safer way to provide for a vulnerable beneficiary to protect them from exploitation.
For Settlors whose families are already financially secure and don’t particularly need to inherit money immediately, a DT can be used as an ‘insurance’ fund for any member of the family who gets into financial difficulty at some point in the future.
In summary, DTs are popular because they offer a flexible way for you to provide for your family in the event of your death.