Everyone knows the importance of having a Will to ensure that your final wishes are carried out. A Discretionary Trust is a great option to ensure all this takes place.
What is a Discretionary Trust?
A Trust is a legal agreement that names a third party, referred to as the Trustees, who will hold assets on behalf of others, known as beneficiaries. Assets can include property, land, money, shares, and investments.
A Discretionary Trust is a special type of Trust that gives Trustees discretion as to choose which beneficiary will benefit at any given time.
Typically, a Discretionary Trust is set up with a schedule for the Trustee to follow when distributing funds. It will also likely state how much is to be distributed. Any distributions are left to the discretion of the Trustee.
Advantages of a Discretionary Trust
Here are some advantages of establishing a Discretionary Trust.
- You can set guidelines. You, the Settlor, can direct who you want your assets to go to.
- Avoid probate. The significant advantage of a Trust is that you can avoid probate if it is a lifetime Trust.
- Flexibility. A Discretionary Trust allows Trustees to make distributions according to the needs of your beneficiaries.
Disadvantages of a Discretionary Trust
There are also some potential disadvantages of using a Discretionary Trust.
- You have no control after you’ve passed. While you can set guidelines in a Discretionary Trust, the ultimate decision on how and when your assets are distributed is at the Trustee’s sole discretion.
- Cost There are ongoing fees for professional advisors, out-of-pocket expenses incurred by Trustees, and taxes, so it can be expensive to run.
- Family disputes. Sometimes, beneficiaries may feel resentful and feel as though they haven’t been left anything outright. This could lead to claims against your estate.
- Immense responsibility. A Discretionary Trust can be an immense administrative and emotional responsibility because of the continuous need to keep records, submit tax returns, and navigate relationships with beneficiaries.
- Potentially losing the residence nil rate band. If your estate is taxable and the residue was left in a Trust rather directly to descendants, you lose the residence nil rate band, and a substantial amount of inheritance tax will be payable unless the Trustee takes the appropriate advice about appointing property out of the Trust in the first two years after you die.
Set up your Discretionary Trust with Elizabeth Middleton Solicitors
There are numerous factors to consider when determining whether you should set up a Discretionary Trust in your Will. A Discretionary Trust can be a lot of responsibility for the Trustees, so it’s imperative to strongly consider who you appoint as a Trustee. While it’s possible that there could be some relatives who are upset about not being entitled to money from the estate, a Discretionary Trust provides flexibility that can be helpful for future circumstances.
If you need help determining if a Discretionary Trust is right for you, let the experts at Elizabeth Middleton Solicitors help. Our team will help you plan for the future and help solve legal problems with professionalism, compassion, expertise, and kindness.
Contact us today to schedule a consultation.