5 Benefits of Having a Discretionary Trust in a Will

5 Benefits of Having a Discretionary Trust in a Will

April 24, 2024 Off By Helen Olsson

If you want to ensure your property and financial assets stay protected and are distributed as you wish after death, setting up a trust may be worth looking into.

In this situation, many turn to setting up a discretionary trust will. 

A discretionary trust allows you to give power to a trustee or trustees to decide how your assets are divided amongst your beneficiaries. 

By setting up a discretionary trust will, you can ensure that your chosen trustees are the sole decision-makers regarding how your inheritance is distributed. 

In this article, we will take a closer look at some of the main benefits of setting up a trust will and how it can help you safeguard your assets.

Let’s begin!

1) Flexibility

If you examine various kinds of trusts, you will find that discretionary trusts offer the greatest flexibility. This is because trustees are allowed complete discretion regarding how the trust is managed, including the decision of who the beneficiaries are, the assets they receive and when they receive them. 

Typically, discretionary trusts can last up to 125 years. 

A discretionary trust can be created when a settlor is alive or added within their will. This is especially beneficial because when a settlor makes their will, they may be unsure of future circumstances when they die. 

With the flexible nature of discretionary trust wills, a discretionary trust can be updated to adapt to changing circumstances. For example, if the beneficiary were to fall on hard times. 

The best part? Discretionary trusts can last up to 125 years, making them an incredibly safe way to secure your assets. 

2) Asset Protection

With a discretionary trust, the beneficiary does not have automatic rights to the assets. 

At times, beneficiaries may pose a risk to their assets due to various reasons. For example, having pending divorce proceedings or being close to bankruptcy. In these cases, the trustees can hold assets and make decisions regarding how the funds are spent in the best interest of the beneficiaries. 

Moreover, they can also retain and use capital assets to generate income for the beneficiaries. This allows for better asset protection until the beneficiary can receive the assets themselves. 

Additionally, setting up a discretionary trust in your will is also a helpful way to protect your assets from creditors. This is especially useful if your family assets are at risk due to any reason. 

3) Estate Planning for Family Members

Estate planning is the process of planning and managing the inheritance of your family members. By setting up a discretionary trust will, you can ensure that your assets are distributed to adequately acknowledge their needs. 

A discretionary trust also allows you to plan well in advance so that your surviving family members are provided for, should there be an unexpected death. 

Furthermore, the versatility of a discretionary trust allows you to account for any family that is not born yet. As such, you can leave assets to your children alongside any potential grandchildren. Alternatively, you could also omit entire generations if you truly wish to do so.

By incorporating a discretionary trust into estate planning, you can look out for your family members while offering safeguards to adapt to changing needs. 

4) Privacy

Upon death, your will normally goes through the probate process. This is the official process to deal with the distribution of your estate and assets when you die. Then, it becomes a public record. 

As such, anyone can obtain a copy of your will once it has gone through this process. Comparatively, a letter of wishes is not a public document and will not be part of the public record.

In this way, a discretionary trust can keep specific details regarding estate distribution out of the public eye. Thus, ensuring the privacy of your will. 

5) Tax Relief

Within the life cycle of a discretionary trust, the trustees, the estate, the settlor and the beneficiaries may sometimes be liable for certain tax charges. However, setting up a discretionary trust allows you to minimise the financial burden of inheritance tax liabilities for assets held within the trust. 

Additionally, discretionary trusts offer more opportunities for better tax planning and allow exemptions, reliefs and allowances to be utilised more effectively. Discretionary trusts will minimise tax liabilities by allowing trustees to allocate them to beneficiaries in a more tax-efficient manner. 

Furthermore, the exit and periodic charges linked with discretionary charges could be lower than what would be charged if the assets were held outside the trust.

To Wrap Up

In conclusion, setting up a discretionary trust in a will is a very strategic move with multiple benefits.

In particular, discretionary trusts are well-suited for people who are willing to leave their decisions about the management and distribution of their assets to trustees. 

As long as you choose your trustees carefully, you can ensure your wishes are carried out just as you intended.