What is a Discretionary Trust in a Will?

What is a discretionary trust?

A discretionary trust in a Will is a way of leaving assets so that no single person owns them outright. Instead you appoint one or more trustees who hold and manage the assets and decide, at their discretion, which beneficiaries receive sums and when. The trustees must act in accordance with your Will and their legal duties under England and Wales law.

Why choose a discretionary trust?

You might choose a discretionary trust because it gives you flexibility and protection. Life changes. A beneficiary who seems likely to need money today may be in a very different position when the time comes. By leaving decisions to trusted executors or professional trustees, you allow distributions to reflect money needs, health, relationships and other personal circumstances at the time.

Protection from risks

Because beneficiaries do not own the assets outright, those assets are generally better protected from risks such as divorce, business failure or creditor claims. This can be especially important if you want to safeguard assets for children, grandchildren or beneficiaries who are vulnerable.

Support where needed

A discretionary trust is useful if a beneficiary has special needs, receives means-tested benefits or has difficulty managing money. Trustees can provide support while preserving benefit entitlement, and can spend capital or income in a way that best serves the beneficiary.

Who controls the trust?

You decide who the trustees and beneficiaries are in your Will. Trustees can be family members, friends or professionals such as solicitors or trust companies. You can also include a letter of wishes to guide trustees on how you would like them to exercise discretion. The letter is informal and not legally binding, but it is highly persuasive and commonly used to state your preferences.

Tax and administration under England and Wales law

Discretionary trusts created by a Will are usually treated as relevant property trusts for tax purposes. That carries two important implications under England and Wales tax rules. First, the trust may be subject to an inheritance tax entry charge if the estate exceeds your available nil rate band. Second, the trust may face periodic charges, commonly every ten years, and exit charges when capital leaves the trust. The rates and thresholds can affect whether a trust is the right tool for your circumstances.

Trusts also bring ongoing administrative duties. Trustees must keep records, file tax returns and manage investments prudently. There are costs involved, including professional trustee fees if you appoint a solicitor or trust company. Those costs are part of the consideration when deciding whether to use a discretionary trust.

When is a discretionary trust appropriate?

Consider a discretionary trust if you want flexibility to adapt your estate plan to future events, if you need to protect assets from specific risks, or if you want to provide for beneficiaries who are minors, vulnerable or likely to receive means tested benefits. For many estates, a straightforward legacy is sufficient. For others, a discretionary trust can provide better long term protection and better control.

Practical steps when you are considering one

• Speak to a specialist solicitor who understands trust law and tax rules in England and Wales.
• Decide who you trust to act as trustees and think about appointing replacement trustees.
• Write a clear letter of wishes to guide trustee decision making.
• Consider the likely tax consequences and administration costs.

Get expert help

Choosing the right trust structure can make a real difference to how your assets are used and protected. If you want to learn more about different trust types and whether a discretionary trust suits your Will, see our trusts guide at /trusts. To discuss your specific circumstances and get tailored advice, contact our team at Beneficial Family Wills via /contact. We work only under England and Wales law and will explain the options clearly so you can make the right choice for your family.

Ready to take the next step?

Making a considered choice now will protect your loved ones and give you peace of mind. Contact us to arrange a conversation about discretionary trusts, lifetime planning and writing a Will that works for your circumstances. Your future. Your wishes. Your Will done properly.