Discretionary trust

This is a discretionary trust since the trustee has the latitude or discretion to give or deny the beneficiary some benefits under the trust. That gives a trustee the power to decide which beneficiary receives the funds and up to what amount. Two or more trustees manage the assets held in the trust for a number of potential beneficiaries. This can have significant advantages.

For example, if a creditor was to pursue the assets of a beneficiary, trust property is generally protectedbecause the trustee is the legal owner. Taking advantage of a discretionary trust can set your beneficiaries up for a responsible financial future. The benefits of discretionary trusts in protecting assets for future generations, and potentially minimising inheritance tax (IHT), have long been recognised by families and their advisors. Fixed trusts are common when a handicapped child is involve to provide proper care for the child in the event the parents or guardians pass away.

What is a discretionary trust ? With either trust, though, once the money is disburse it’s fair game. To prevent seizure of trust disbursements, the trustee of a discretionary trust can pay expenses, like tuition or a mortgage, bypassing the beneficiary completely. A key trait of a discretionary trust is that the beneficiary does not have any legal power to compel the trustee to release any trust assets to him or her.

A discretionary trust typically offers greater asset protection to its beneficiaries. As well as being flexible, they have proved a popular method of estate planning because assets remain outside the beneficiaries’ estates for Inheritance Tax purposes, and are not included in any calculation for means-tested benefits. When a discretionary trust is created the settlor gives the trustees the “discretion” as to how to use the income generated by the trust, and sometimes the capital. Sometimes a discretionary trust will give the trustees the power to add the income to the capital. This power is known as the power to “accumulate” income.

Trust instruments usually give some guidance regarding what sorts of discretionary distributions a trustee can make to beneficiaries. In many cases, however, these powers are open to interpretation. The trust could be ended earlier than this, for example if all the beneficiaries have died (in which case the trust assets would pass to the default beneficiaries) or by the trustees distributing all the trust assets out to. Every beneficiary in a discretionary trust has the legal right to challenge the decisions of the trustees if that decision was arrived at in bad faith or illegal even though the testator had given the trustees a full discretion to determine the proportion to be given to the beneficiaries. The trustee manages and distributes the assets in the trust as they see fit.

The following DTT charges apply to trust assets: An initial once-off charge. A In this particular type of trust, however, the trustee is given full discretionary authority to decide when and what funds – such as principal or income – are given to which beneficiaries. He or she also has the right to decide the extent of its benefits. As the Trust is a discretionary trust (as opposed to say a fixed unit trust ), no Beneficiary has a vested interest in the Trust Fund and no Beneficiary can require the Trustee to exercise his discretion to appoint income or capital in his favour. For example, the trust may set aside money for education, but the final decision is in the trustee’s discretion.

If a beneficiary has a track record of reckless financial behavior, or if creditors are clamoring at the door, the trustee may be able to withhold payments to the beneficiary. This means that the client must have the utmost trust in the investment. I am unsure of the tax I need pay and whether I need to declare the money on my tax return. A non-discretionary trust is one that requires the trustee to make a certain distribution and the trustee has no discretion at all.

In a discretionary trust , the ‘trustees’ are the legal owners of any assets – known as ‘property’ – held in the trust. They are responsible for running the trust for the benefit of the beneficiaries. The trustees have ‘discretion’ about how to use the income received by the trust. This is a very common type of Trust used in estate planning because it is extremely flexible and it is the least costly to draft.

Wholly discretionary trust means a trust to which all of the following apply: (a) The trust is irrevocable. For example, you can leave money to provide for grandchildren that haven’t been born yet. Trust powers ( discretionary trusts) A trust power is in substance a discretionary trust but, in form, the gift resembles a power. The court construes the instrument and decides that, in accordance with the intention of the settlor, a discretionary trust was intended.

For inheritance tax purposes, a discretionary trust is defined as a trust or other arrangement whereby no person has a beneficial interest in possession. A beneficial interest in possession is an immediate and present right to the assets or their income. A trust may allow funds to be accumulated until a certain age.

Discretion is the right or ability to make a judgment or decision.