Will Trust Series Five: Discretionary Trusts

One of our core Estate Planning offerings is the use of Will Trusts. Different types of trusts can be written into your Will to protect assets for the family, in case certain problems arise. However, to the average man on the street, there are potentially a bewildering amount of different Will Trusts available, all with different names and uses. To make matters worse, different legal advice firms have different names for the same type of Will Trust.

Although this article is an attempt to de-mystify Will Trusts a little, don’t panic! My main takeaway advice with regard to Will Trusts (and Estate Planning in general for that matter) is to get in touch for an initial meeting with one of our later life specialist advisers. At this initial meeting be prepared to talk about your current situation, what you are looking to achieve and what you are worried about. Once our advisers have got a good grasp of your situation, they will be able to start discussing some recommendations with you, which may or may not involve a specific Will Trust!

Anyway, back to Will Trusts. Let’s talk about the Discretionary Trust (DT). So, what is a DT? A DT is a Will Trust that leaves the distribution of the trust property to the discretion of the trustees. The trustees have the right to retain and hold assets and eventually distribute to anyone from a given list of named beneficiaries as they see fit. These beneficiaries are chosen by the person making the Will, but they have no absolute legal right to inherit from the trust. Instead, they are from a legal point of view, only potential beneficiaries.

When would you need a DT?

Owing to the wide-ranging powers given to the trustees, DTs offer a great deal of flexibility to cater for changes in the circumstances of beneficiaries (after the death of the testator). Such circumstances cannot always be foreseen at the time of creating the Will, making the DT a powerful tool for clients with concerns about particular beneficiaries.

For example, perhaps where a beneficiary cannot be trusted to handle large amounts of money. Or perhaps it is likely that a beneficiary might be involved in divorce proceedings. Or maybe where the person making the Will intends to make a series of lifetime gifts to beneficiaries and they ultimately would wish them to receive an equal amount. The person making Will may wish to benefit a qualifying disabled beneficiary but they do not want to create a Disabled Discretionary Trust (less flexible). Finally, an intended vulnerable beneficiary perhaps does not qualify for special tax treatment in respect of trusts for disabled persons  but the person making the Will still considers them incapable of managing their own funds.

Letter of Wishes

Because of the extent of the discretionary powers, a letter of wishes must be created to help the trustees understand the person making the Will intentions and the rationale behind the creation and running of the trust.

Trustee Selection

Because of the power and responsibility of the trustees, it is critical the person making the Will considers carefully the appointment of those trustees. In particular they should consider the size and complexity of the trust with regard to trustee capabilities. The trustees need to have the highest honesty and integrity, be on good terms with all the potential beneficiaries as well as each other. Consideration should be given to any potential conflicts of interest. In some cases, professional trustees should be considered.

Joined Up Estate Planning

Often when people hear the phrase ‘Estate Planning’, they often think of writing their Will, perhaps incorporating a Will Trust such as explained above. But in practice, Estate Planning often involves more than many people think. When families begin reviewing their estate plans more holistically, especially with our guidance as later life financial and legal specialists, they are often surprised to discover gaps and inconsistencies.

A well-considered estate plan usually brings together several areas of financial and legal planning. Wills, LPAs and Trusts form part of that picture, but so do questions about inheritance tax, long-term care considerations and investment management.

Alongside legal arrangements, financial planning considerations are often closely connected. Investment decisions, pension planning and inheritance tax allowances can all influence how efficiently assets might pass between generations both in lifetime and on death.

For some families, another important aspect of estate planning, particularly with regard to LPAs, is considering how financial resources might be used later in life, particularly if care or support becomes necessary. With this in mind, thoughts turn naturally to aligning investment management, Immediate Care Plans and inheritance tax strategies. 

Many people find that different parts of their planning have been put in place at different times of their life. A Will may have been written many years ago, LPAs actioned at some point but long forgotten about, pensions and investments taken out whilst still working.

Individually, each decision may have been sensible at the time. But without reviewing them together, it is not always clear whether the overall plan still reflects current intentions and your life situation as it stands. It is critical that the financial and legal arrangements for your estate planning are perfectly aligned. If they are not, it can create unwanted upset down the line.

Estate Planning Events

To help people understand these issues more clearly, we will be running a series of free Estate Planning seminars locally this June and July. These sessions will explore key elements such as Wills, LPAs and Trusts and explain how they work alongside your financial planning arrangements like inheritance tax, investment management and care fee planning.

To find out more about the seminars or arrange a relaxed chat about your circumstances, call 0117 363 212 or email office@haroldstephens.co.uk.
50 High Street, Westbury on Trym, BS9 3DZ