A Discretionary Trust is the most flexible type of trust that can be used to make provision for a group of people, such as your children or other family members. It is also possible for charities to benefit from this type of trust.
In a Discretionary Trust, the Trustees have complete flexibility in deciding how they use the income and capital of the Trust fund for any of the beneficiaries. Each beneficiary does not have any fixed entitlement to receive money from the Trust, they will only receive a benefit if the Trustees exercise their discretion in favour of any particular beneficiary.
The main advantage of a Discretionary Trust is that the Trustees can make decisions to meet the changing requirements of the beneficiaries during their lifetime. This is especially important where the needs of a disabled or vulnerable person can fluctuate or change, for example with age or through the nature of their disability.
As the beneficiaries are not ‘entitled’ to receive anything from the Trust, the assets held by the Trustees cannot be taken into account when assessing any entitlement to means-tested benefits.
However, where a beneficiary is receiving means-tested benefits the Trustees need to be careful how they use the assets, to avoid endangering any future claim for means-tested benefits. Our expert lawyers can help you understand the impact of the Trust in relation to benefits, and will ensure the Trust is set up to work effectively – now and in the future.
It is important to put in place the right type of Trust for your circumstances. For some people, a Disabled Person’s Trust (DPT) may be more relevant as it is a Trust set up to specifically benefit a ‘disabled person’. While the majority of Trusts operate under the same tax rules, those which benefit a disabled person are an exception to the rule and may attract favourable tax treatment. Find out more about Disabled Person’s Trusts here.