What are discretionary trusts?
There are different types of trusts; discretionary trust is one type of trust you might find useful for your relative and it means that:
- Your relative does not get their inheritance paid directly to them when you die,
- Your money and assets will pass to other people, called ‘trustees’, and
- The trustees hold the money and assets on trust for your relative.
You can choose who you would like to be a trustee but it is important to choose someone you think is reliable.
The trustees will decide whether or not to give your relative money; you can give the trustees instructions setting out when you expect them to give your relative money, but they can decide not to – this is why the trust is called ‘discretionary’.
The trustees will decide whether or not to give your relative money. You can give the trustees instructions setting out when you expect them to give your relative money, but they can decide not to – this is why the trust is called ‘discretionary’.
The potential benefits of a discretionary trust include the following:
- Your relative will not own the money in the trust, so they will not be able to spend it quickly or unwisely.
- The money in the trust will not reduce their entitlement to benefits or increase the amount they have to pay towards social care.
- You can tell the trustees what you would like the money to be used for.
The potential negatives of a discretionary trust include the following:
- The trustees do not have to pay your relative.
- Your relative might not get all the money in the trust.
- There may be some tax disadvantages, which you would need to check with your Solicitor.
How do I set up a discretionary trust?
You can set up a trust by signing a trust deed. Someone qualified to do so, such as a Solicitor, should draw up the trust deed.
It is important to speak to a Solicitor who is experienced in dealing with wills and trusts, as they can make sure that the discretionary trust is set up in a way that both maximises the benefits and reduces the negatives.
It is important to note that laws change, so there is no guarantee that money held in a discretionary trust will always be treated the same way in the future.