Patrick's in-depth knowledge of the subject, combined with his quiet, calm professional manner put our minds at rest - before our bodies! Dave Saunders
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Willing to give peace of mind
A discretionary trust in Wills provides a very flexible way to preserve assets for your chosen beneficiaries against an unknown future. The essence of such a trust is that the trustees appointed are given complete discretion to decide who from those beneficiaries that have been named should receive any money from the trust fund, how much they should receive, and when. The beneficiaries themselves have no legal right to demand anything from the fund.
Often, a separate letter of wishes will be prepared for the trustees. This will include an explanation of why the trust has been created and offer guidance as to how it is hoped they will exercise their discretion in passing on income or capital to the beneficiaries. Such a letter is simply an expression of wishes and has no legal force, but trustees would be expected to be mindful of its contents when making relevant decisions.
There can be tax advantages in using discretionary trusts in Wills. Assets held in such a trust will not form part of any individual’s estate, while the option to transfer assets to another trust for the benefit of, for example, grandchildren or great-grandchildren can provide the basis for additional estate planning in the future.
Sam and Samantha have two children. Stephen is the eldest and is married with children of his own. Their younger child, Sophie, is disabled and unable to care for herself. She has no real idea of the value of money and would not be able to look after her own finances. Sam and Samantha’s main concern is Sophie’s welfare once they have died.
The couple’s assets comprise their jointly owned home and a small amount of savings. They do not have any life cover. Once they both die, Sophie will be unable to cope in the house on her own and so it will need to be sold. There will then be at total of around £350,000 available for their children. They could leave the entire amount to Stephen, but he would have no legal responsibility to use any of the money for Sophie’s benefit. What’s more, if he were to die, divorce, or get into financial difficulties the whole amount would be at risk.
A better solution is for Sam and Samantha’s Wills to provide that once both Sam and Samantha have died, half the estate goes direct to Stephen and half to a discretionary trust. The beneficiaries of the trust would be Sophie, Stephen, Stephen’s wife and his children and grandchildren. Stephen and his wife (or any other person Sam and Samantha consider most appropriate to look after the money) may be appointed as trustees. A separate letter of wishes is also prepared making it clear that Sam and Samantha wish Sophie to be the main beneficiary during her lifetime and that the other beneficiaries named should only benefit once Sophie has herself died.
The effect of this arrangement is to protect half the value of the estate for Sophie’s benefit without giving her any direct right or claim to the money. This means that the value of the trust fund cannot be counted as her personal asset, preserving her right to state benefit while still allow her future needs to be met.
The trustees will have complete discretion to release money to Sophie as they see fit or to use the funds to buy her anything she might need or want. The money could even be used to pay for holidays or anything else that might make her life more enjoyable.
Once Sophie herself dies, any money remaining in the trust fund may be distributed to Stephen, his wife or their children as is most appropriate at that time.
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Society of Will Writers