Discretionary Trusts  Frequently Asked Questions

11 May 2022

For many of us, the purpose of executing a Will is to make sure our loved ones are provided for once we are no longer around. However, when that loved one has a disability, this can lead to challenges.

You may be concerned about leaving property or money to a disabled family member or friend for multiple reasons: - 

  • You may be aware that the disabled beneficiary will not be able to manage their own property and finances,  
  • You may fear they would be at risk of financial exploitation 
  • You may be concerned that by leaving them property a lump-sum of money, you would be disentitling them from means-tested benefits, ultimately leaving them no better off than they were before. 

If these are the kind of issues which are on your mind, you may wish to consider putting in place a Discretionary Trust in your Will. 

What is the purpose of a Discretionary Trust?  

A Discretionary Trust is a mechanism regularly used when a person wishes to make provision in their Will for a person who would not be able to hold or inherit assets themselves due to their lack of capacity to do so.  

How does a Discretionary Trust work?  

A person wishing to make a Discretionary Trust would in their Will appoint “Trustees” and leave specified property or capital to the Trustees to hold “on Trust” for the person they wish to benefit.  

By placing the assets in a Discretionary Trust, the assets remain under the control of appointed Trustees and not the beneficiary.  This means that a beneficiary who is incapable of managing their own affairs would have any inheritance managed on their behalf by the Trustees.  

Who owns the assets in a Discretionary Trust?  

Due to the nature of a Discretionary Trust, the Trust assets cannot be considered to belong to any person, even if in practical terms they are only being used to benefit one person.    For that reason, any assets left or accumulated in a Discretionary Trust would not affect a beneficiary’s eligibility for means-tested benefits.  

Can I leave my assets to one person in a Discretionary Trust?  

For a Discretionary Trust to operate legitimately, there needs to be more than one beneficiary named. As such, whilst you may be seeking to benefit one disabled person in the Trust, other people, such as other children, nieces, nephews or family members, friends, even charities would also need to be added to make the Discretionary Trust valid.    

Can I do anything to control how my Trustees use the Trust fund?  

Your Trustees would have discretion and control over how (and to who) the income and capital of the Trust fund is distributed.  This is where the element of “discretion” comes in.  It is important that you identify and appoint as Trustees individuals who you are confident will manage the Trust fund as you would wish them to.  

It is normal practice to have a Letter of Wishes sit alongside a Discretionary Trust. This letter would not form part of the Trust or Will but it would include information about the disabled person’s specific needs and outline very clearly to your Trustees a preference that you would wish the Trust assets to be used to benefit the disabled person solely, despite the fact that other people are named within the pool of beneficiaries.  

This Letter of Wishes is signed by you and kept along with your Will. Although the Trustees would not be legally bound to act in accordance with your wishes, the intention is that you would appoint Trustees who you would trust to act in the way you asked them to. 

Ultimately, it is always prudent to take the time to take steps during your life to ensure that upon your death provision has been adequately made for all of those whom you wish to benefit.   

If you require advice or assistance in respect of Discretionary Trusts or any other future planning matter, please call our offices on 028 9024 3901 or email Chloe Emerson on cemerson@fhanna.co.uk