If you’re looking to make sure all your property and financial assets stay protected during life, giving you more flexibility should your circumstances change, and are distributed as you wish after your death, a Discretionary Will Trust is becoming an increasingly popular method of making that happen. Added in as part of your standard Will, setting up a Discretionary Will Trust can be the ideal way to ensure any named trustees can decide when and how any inheritance should be received.
How do Discretionary Trusts work?
While writing your Will is important, giving clear instructions to any executors and beneficiaries after your death, it can be a very ‘black and white’ document. In itself, it isn’t flexible enough to adapt to any changes that may happen during your life. So when events happen that do cause you to reevaluate your circumstances, your Will needs to be amended and adapted to suit. But having a Discretionary Will Trust can make the process a lot easier.
The key to a Discretionary Trust as part of your Will is having it split between two parties: your “Trustee(s)” – who are the people who will manage the Trust on behalf of the beneficiaries – and your “Beneficiaries” – the individual(s) who will own your property and assets after your death.
The main reason to have a Discretionary Trust Will is that you can leave your estate, or as much or little of it as you like, in trust for any length of time after your death. Your estate and its assets can then be distributed to some or all of your beneficiaries, including anyone not born even yet, by your chosen Trustees when the time is right.
The discretion part of his type of trust is that the Trustee(s) has the choice of dividing up the trust property or assets and distributing them however they like. There are no limits in the Trustee’s discretion when allocating the estate, as the Trust gives complete freedom for them to do so. This gives much more flexibility to your WIll and certain assets can be protected for any reason.
The advantages of a Discretionary Trust Will
As we’ve mentioned, one of the main benefits of a Discretionary Trust Will is its flexibility. Because a Discretionary Trust will have a standard period of time attached to it, usually lasting 125 years after your death, it can also be set up to include whoever you want or need to and offers the easy distribution of all your assets. But there are other benefits too, including:
• Estate planning for family members
Planning well in advance means your surviving family members are provided for in the event of an unexpected death. And the versatility of a Discretionary Trust means you can also include members of your family who aren’t even born yet. So you can leave assets to your children as well as any potential grandchildren, or you can even omit whole generations if you wish to.
• Property protection
A Discretionary Trust will also provide protection for any of the property assets held in the trust. This means that whatever property is included in the Trust, it’s protected from creditors in the event of bankruptcy or business liquidation.
• Tax relief
As with other Trusts, a Discretionary Trust also offers certain tax relief benefits as well, including Income Tax and Capital Gains Tax. Inheritance Tax can also be minimised and we go into that in a bit more detail below.
The disadvantages of a Discretionary Trust Will
As with most things, no Trust is perfect and that includes a Discretionary Trust. While there are plenty of advantages, there are some disadvantages you should be aware of which might mean it’s not the right Trust for you. These can include:
• Trust complexity
Like a lot of Trusts, a Discretionary Trust structure can be complex and complicated to arrange and administer correctly. but while it can be loaded with legal precedents, don’t let that put you off getting the ball rolling if you think it’s right for you.
• Loss of asset control
In transferring your assets to a Discretionary Trust, it means you lose overall control of them. Instead, your named Trustees take control and manage them on your behalf according to the Trust deeds. As there’s usually ‘no going back’ on the Trust once it’s in place, it’s important that you’re certain you want to go ahead.
Getting advice from the team at MJR Solicitors can help you make the right decision for yourself and your family and help you overcome some of the more technical and legal aspects a Trust can involve. Contact us today and we can give you the advice and information you need.
Discretionary Trusts and Inheritance Tax
A Discretionary Trust as part of your Will can be a tax-efficient way to minimise the financial burden of Inheritance Tax (IHT) when you pass your assets over to your beneficiaries. We should mention that having a Discretionary Trust won’t wipe out the need to pay IHT completely, but it will ensure beneficiaries aren’t left with a large Inheritance Tax (IHT) bill to pay for after your death.
Any IHT that’s due to be paid is at 40% on anything above the current threshold of £325,000. However, this is automatically reduced to a rate of 36% if your Will leaves more than 10% of your estate to charity. Beyond that, assets will be taxed at several points throughout the life of the Trust, if applicable, which includes:
• Transfers into Trust – if paid by you instead of the Trustees, it means your estate will be worth less
• Transfers out of Trust – an IHT ‘exit charge’ is charged at a maximum of 6% on assets
• 10-year Anniversary Charge – paid by Trustees if the Trust contains property over the IHT threshold
As you can imagine, any tax implications and calculations on your assets and estate are complicated and not for the faint-hearted. This is why MJR Solicitors can help you every step of the way throughout the process of setting up and managing your Discretionary Trust Will.
Set up your Discretionary Trust Will with MJR Solicitors
While it can be complex, our specialist Wills and Estate Planning team have the experience to make setting up your Discretionary Trust Will as easy and straightforward as possible for you. So when you’re considering your Will options, for information and jargon-free advice on how to get started, call 01243 945 054, email us at firstname.lastname@example.org or send us a message through our contact form today.
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