Discretionary trusts give you the flexibility and control to manage your estate, ensuring your specific wishes and changing circumstances are fulfilled.
A discretionary trust is a legal arrangement where assets are managed by trustees for the benefit of a group of beneficiaries. Unlike other trust structures, the trustees have complete discretion over how and when to distribute the trust’s assets, providing unparalleled flexibility in both wealth management and succession planning.
Representing one of the most flexible and tax-efficient vehicles for protecting and transferring wealth across generations, a discretionary trust is a powerful estate planning tool. While providing settlors with significant control over their assets, it also offers potential tax advantages and asset protection benefits.
Discretionary trusts can be used in a range of circumstances where the settlor would prefer there to be an element of control around access to the trust property.
This could be concerning the ages at which a beneficiary can access the funds or to shield them in the event of bankruptcy or divorce.
These types of trusts can be tax efficient, often assisting with inheritance tax planning, among other purposes.
Discretionary trusts can be used for inheritance tax (IHT) planning, allowing for gifts to be made to a range of people or charities.
However, an initial transfer into the trust could generate an immediate IHT charge. There is also a potential for periodic charges every ten years as well as exit charges when assets leave the trust. Trusts can also be used to receive the benefit of any insurance policies to ensure funds are excluded from the estate and readily available.
Always speak to an adviser when discussing the impacts of discretionary trusts and inheritance tax.
There are several types of trusts however, a discretionary trust is a legal arrangement where the assets are managed by trustees on behalf of beneficiaries. Unlike other trusts, the trustees have complete control over how and when they can distribute the trust’s assets. This can provide complete flexibility in both wealth management and succession planning.
A discretionary trust and a discretionary family trust are essentially the same thing. The word ‘family’ is purely added when the beneficiaries are predominantly family members of the settlor.
The only significant difference is that a discretionary family trust can restrict the pool of potential beneficiaries to family members and their related entities. However, a standard discretionary trust will allow beneficiaries to be friends, employees or even charities.
Discretionary trusts are more suitable for those with substantial assets who are looking to protect and preserve family wealth. They can also be used within estate planning for tax reasons, to protect assets for future generations and to maintain flexibility in beneficiary distributions.
The trustees have control over the trust and making distributions to the beneficiaries, so you should select people who you trust to carry out your wishes.
Discretionary trusts are their own separate legal entity and must be registered with the Trust Registration Service and HMRC for tax reporting, if appropriate.
There is no limit on the number of trusts an individual can establish, although there are rules relating to reporting and trust-specific taxes, so it’s important the appropriate advice is sought to ensure initial and ongoing compliance.
A discretionary trust can hold most types of asset that has a value. These could include:
It’s important to note that while most assets can be held in trust there may be tax implications or specific rules. Therefore we always advise you to speak to your financial adviser when looking at a discretionary trust.
Yes, we can provide advice on the trust establishment and ongoing investment management, although we would recommend you receive independent specialist legal advice on the trust itself.
Yes, provided the trust has been registered with the Trust Registration Service (TRS). If you are already a client of ours, you should speak to your consultant. If you are new to Mattioli Woods, book your free appointment here.
