A trust allows you to place assets under the control of chosen trustees, either during your lifetime (by deed) or on your death (by will). Hollie Skipper from local solicitors Wiseman Lee explains
A Discretionary Trust allows you to leave a portion of your assets under the control of your trustees. These should be people that you trust implicitly, such as friends, family or professional advisers, who may also be the executors of your will.
You will choose exactly who the beneficiaries of the trust are and exactly how much the fund will be. You can create a trust over a percentage of your assets, over a specific sum of money or over your entire estate. The fund can be held in a simple bank account or invested.
Your beneficiaries are not entitled to any part of the fund until your trustees decide. Their decision will likely be based on the needs of the beneficiary. Your trustees will have the discretion to decide how much your beneficiaries receive and when, and payments can be small and regular or in lump sums. You are able to leave some written guidance to your trustees, although they are not bound to follow this.
Why create a trust?
- Future flexibility: you may be unsure how you would like your assets to be distributed in years to come, so leaving this to your trustees to consider in the future may be more practical.
- Beneficiary receiving benefits: if your beneficiary receives an inheritance, this could be considered when they are financially assessed and mean they lose some, or all, of their state benefits. Your trustees can pay your beneficiaries just enough money to ensure their benefits are not affected.
- A beneficiary unable to manage their own affairs: your trustees could use the trust fund to ensure your beneficiary is cared for during their lifetime. If your beneficiary has lost capacity and does not have an attorney or deputy appointed, then the trust arrangement could prove beneficial.
- Concerns about a beneficiary receiving a large sum of money: whether it is a young or irresponsible beneficiary, a beneficiary who may be vulnerable or subsequently needs to move into care, you may decide it is not sensible for them to be given their inheritance in one go or be immediately entitled to the money.
- Protecting the money from creditors: as your beneficiary will not be absolutely entitled to the funds until your trustees decide, the money is protected in the event of bankruptcy.
Depending on how much you settle into trust and when, there will be potential inheritance tax consequences or benefits. Specialist advice is needed.
Wiseman Lee is located at 9–13 Cambridge Park, Wanstead, E11 2PU. For more information, call 020 8215 1000