By Head of Wills, Solicitor James Antoniou
When making a Will in England or Wales you can either leave things to people outright, or you can leave things to be held in a Trust.
A Trust, as part of a Will is a legal concept which basically means that you can appoint people (called Trustees) to hold property or other assets and manage them on behalf of someone else (the Beneficiary). The type of Trust that you have in a Will, and the terms of the Trust can vary depending on what you are looking to achieve.
What is a Discretionary Trust in a Will?
A Discretionary Trust Will can be used to leave your Estate, or part of it, to a Trust created in your Will. You can choose people to be your Trustees and name people you would like to include as potential Beneficiaries of the Trust. You then give your Trustees total discretion over which of the potential Beneficiaries actually receives anything from your Estate, when and how – hence the name Discretionary Trust.
Normally a person would also prepare a Letter of Wishes, separate from their Will, which will provide guidance as to how they would like the Trustees to exercise their discretion.
Why Put a Discretionary Trust in My Will?
There are a number of very good reasons.
At the time of making your Will, what if you:
- Didn’t know exactly who you wanted to benefit from your Estate and to what extent?
- Only wanted a particular person to inherit in circumstances that can only be determined in the future?
- Wanted to leave your Estate to a disabled person who is mentally unable to manage their finances?
- Wanted a particular person to benefit from your Estate but a lump sum of money could jeopardise any means tested benefits they may currently receive and rely on?
These types of circumstances are actually quite common and one approach to these issues is to put a Discretionary Trust in your Will. It provides maximum flexibility when your Estate is distributed after your death, and ultimately empowers your Trustees to make the decision, rather than you.
In light of this, the person making the Will should choose a Trustee who they believe will follow any guidance that is provided via the Letter of Wishes.
To illustrate with an example:
Let’s say Mr Smith is making a Will. He has three children – Bernard, Charles and Dorothy. Unfortunately Dorothy is an alcoholic and has gambling problems. Mr Smith would really want to benefit his three children equally, but is concerned that Dorothy would squander any inheritance she received due to her illness.
To solve this problem, rather than leave his Estate equally between his children in his Will, he could leave a third of his Estate to Bernard, a third to Charles and put a third into a Discretionary Trust. The Discretionary Trust would name Bernard, Charles and Dorothy as potential Beneficiaries.
At the time of making his Will, Mr Smith would also prepare a Letter of Wishes addressed to his Trustees saying that he would like them to pay the inheritance to Dorothy if she has recovered fully. But if she is still suffering from her illness at the time of his death, then he would want the Trustees to pay Dorothy’s share to Bernard and Charles instead.
The Discretionary Trust enabled Mr Smith to defer the decision about how his Estate was to be distributed so that his Trustees could make the decision at the time of his death and in the knowledge of facts at that time.
To discuss your circumstances and understand more about the benefits of using a Discretionary Trust in your Will, just contact us and we'll be happy to help you.