What is a discretionary trust?



Article by
Chris Lucas



A discretionary trust is a trust set up whereby the trustees are given discretion over the trust fund, typically with regard to the payment of trust money to one or more beneficiaires. 

Who are the legal owners of the trust fund?

The trustees are the legal owners of the trust fund which can comprise of any assets, such as money, land or buildings.

What 'discretion' do the trustees have? 

Normally, the trustees will be able to decide how to use or invest the trust assets in the interests of the beneficiaries and how the trust fund should be distributed between the beneficiaries if at all.  Quite often, the person setting up the trust will have prepared a 'letter of wishes' to the trustees setting out how they would like the trustees to exercise their discretion. The extent of the trustees' discretion will depend on the terms of the trust.

Why use discretionary trusts?

One reason may simply be to allow the trustees flexibility to pay different amounts of income or capital to different beneficiaries. This can be useful if the future needs of a beneficiary is not known; for example a grandchild who may require greater financial assistance in the future.

Discretionary trusts are also particularly useful if one or more of the beneficiaries are not capable or responsible enough to look after money for themselves.  Common examples of this include a child or adult beneficiary with severe learning disabilities. In relation to the latter, particularly where a vulnerable beneficiary is in receipt of means tested benefits, a discretionary trust will enable the trustees to pay money to that beneficiary as and when required in such a way that the arrangment will not affect the beneficiary's entitlement to benefits. This is because the beneficiary would have no beneficial right to the trust money, rather a mere chance that the trustees might exercise the discretion in their favour. The situation would be very different in the case of a bare trust, where the beneficiary would have an absolute right to the trust fund.

Personal injury trusts – what’s the story?

 

Article by
Chris Lucas

I have just settled a personal injury case for one of my clients who had an unfortunate accident whereby a barrel was thrown onto his leg causing a significant trauma injury with various other complications. The case settled for a five figure sum and was actually the highest award I have ever achieved for one of my own clients in my career as a trainee. Given the amount of compensation my client is due to receive, I have advised him to give careful consideration to setting up a personal injury trust.

What is a personal injury trust?

A personal injury trust is a legal arrangement whereby the compensation awarded from a personal injury claim is held and controlled by people chosen by the injured client, the ‘trustees’. The trustees’ responsibility is to look after the money and use it for the benefit of the injured client, the ‘beneficiary’.

Can’t I just pay my compensation into my bank account?

There are a number of reasons why we would advise any client receiving a large amount of compensation to set up a personal injury trust. The most common reason is that if you are in receipt of means tested benefits, the money you have will be taken into account. The threshold is that if you have over £6,000, your entitlement to benefits will be affected. In addition, if you currently receive or will need Community Care Support at some point in the future, having a large sum of money can lead to your support costs increasing significantly.

What if I just spend my compensation quickly?

Your entitlement to benefits could still be affected if you do not act in a way which is considered reasonable. Spending your compensation all at once on a shopping spree or using the money to pay off your mortgage are examples of where the Benefits Agency might conclude that you have attempted to defraud the system and you could be penalised as a result.

Can my Spouse Change Their Will After I Die?

Article by
Sharon Brown

The simple answer to this question is yes.  A Will is an individual document, which can be changed at any time (provided the testator has capacity to do so).

However, if two people have made “Mutual Wills” they have agreed not to amend their Will without the consent of the other person.

Many people confuse Mutual Wills with Mirror Wills, which is the term given when two people make very similar Wills at the same time, for example, everything to their spouse followed by their children.

Personal Injury Trusts - Frequently Asked Questions

Article by
Sharon Brown

What is a Personal Injury Trust?

A Personal Injury Trust is a legal document which allows any compensation you receive as a result of an accident to be disregarded when you are assessed for means tested benefits.

Also, if you believe you may need to go into residential care in the future then setting up a personal injury trust can protect your compensation from being used to pay your care fees.

State support is designed to assist people when they need it, and therefore with careful planning it is possible to retain your compensation and maximise state support.