Discretionary Trust Will in 2021discretionary trust will

It’s incredibly important to have a will setting out your wishes so that you can be sure they’ll be carried out when you’re gone. A discretionary trust Will can be used to leave your estate or a portion of it to a trust which has been created in your will. In this article we will share:

–       The function and purpose of discretionary trust wills

–       Why discretionary trust wills are useful

–       How to set one up

A discretionary trust will can be used to protect all or some of your estate in a trust. In this article, we will explain what discretionary trusts are for, how they are used and why they are useful.

10 second overview of this article

  • Discretionary trusts provide a flexible way to indirectly gift assets, property and money to beneficiaries.
  • Discretionary trusts can be tax efficient and allow you to ensure that your wishes are followed upon your death.
  • You can set up a discretionary trust at any time. They can also be adapted should your circumstances or situation change.   

What is a discretionary trust Will and how does it work?

Discretionary trust wills provide a way to leave assets or money to beneficiaries indirectly.

This may be tax efficient, which means it will help you to pay less tax on the value of your assets. Discretionary trust wills are known as one of the most flexible options available to families and individuals who are undergoing estate planning. They empower trustees to make decisions regarding the distribution of assets once you’re gone – so they can ensure that your wishes are carried out in the best interests of all involved.

If you are looking at using a discretionary trust to avoid care home fees then we recommend you watch this short video.

What are the benefits of discretionary trusts?

The principle benefit of discretionary trusts is flexibility. They are incredibly versatile, and the distribution of assets is easy. Beneficiaries can include surviving spouses, children, partners and other family members. Other advantages include:

–       Advance provision for family members: You can plan in advance so that your family are provided for in the event of an unexpected death.

–       Protection from creditors: Any assets or property held in trust is generally protected from creditors. That means it cannot be taken in the event of liquidation or bankruptcy.

–       Tax relief: Certain types of tax relief are available under trust fund schemes. Inheritance Tax can also be minimised where assets amount to less than the nil band rate.

Are there any disadvantages to discretionary trusts?

There are several disadvantages to discretionary trust wills that you should be aware of before you arrange one. These include:

–       Complexity. Setting up and maintaining a solid discretionary trust structure can be complicated.

–       Potential loss. Only profits are distributed – losses remain as such.

–       Trust. You must trust the individuals you appoint as trustees, as they have greater powers under a discretionary trust. They are responsible for ensuring your wishes are carried out, so you have to be positive that they will do so.

Here is a video explaining what a discretionary trust is.


Why do I need a discretionary trust will?

There are many reasons why people set up discretionary trust wills.  Reasons include:

–       Individuals who are unsure of their exact wishes when making a will. If you’re not sure how you’d like your assets to be divided up when you’re gone then don’t worry – you’re not alone. This is actually very common. Discretionary will trusts allow flexibility for this so that you can change your mind at any time.

–       Individuals whose beneficiaries’ welfare payments may be jeopardised by a lump sum gift. If you were to directly leave assets to a family member it may complicate or jeopardise their means-tested benefits payments. Leaving them funds via a trust prevents this from happening.

–       Individuals with beneficiaries at risk of bankruptcy. If your beneficiary is bankrupt or at risk of bankruptcy, there is a risk that the value of the estate you leave to them will be passed directly to creditors.

–       Individuals with beneficiaries going through a divorce or at risk of divorce. Using a discretionary trust will ensure that your beneficiary is not at risk of losing the assets you give them during divorce proceedings.

–       Beneficiaries who are vulnerable or disabled. Any beneficiaries who are unable to manage their own finances can be provided for with a discretionary trust.

Discretionary Trust Will IHT implications  

Trusts made as part of wills are commonly used to avoid inheritance tax. But discretionary trusts have many other advantages and shouldn’t be solely used as a method of inheritance tax evasion. It’s important to consider the discretionary trust Will IHT implications before you arrange one.

It’s worth noting that the presence of discretionary trusts alone won’t eliminate the possibility of paying inheritance tax entirely. There will be a balance to pay on the capital when it is paid out of the trust to the beneficiary – if the value of the estate exceeds the nil band rate of £325,000. Relief from other types of tax can be found under a discretionary trust – such as Capital Tax exemption.

For tailored financial information based on your specific situation, you will need to speak with a qualified advisor who can offer bespoke support.  


Where can I go for further help on discretionary trust wills?

You can find further information on discretionary trust wills from charities such as Age UK, or impartial financial advisors who offer free advice.

IF you need some help preparing a discretionary trust will, then please leave your details below and we will find a legal specialist to help you.  This is a free service that we offer to all our site users.


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