What Is a Discretionary Trust?

A discretionary trust is a flexible type of trust where, instead of leaving a fixed amount to a named person, you hand assets to trustees you trust and let them decide which of a group of potential beneficiaries should receive money, how much, and when.

What is a discretionary trust?

With most gifts in a will, you say exactly who gets what. A discretionary trust works differently. You name a group of potential beneficiaries — for example all your children and grandchildren — and appoint trustees to decide how the money is shared between them. No single beneficiary has an automatic right to the money; it is up to the trustees.

To guide them, you usually write a "letter of wishes" — a private, non-binding note explaining how you would like the trust to be used. The trustees must consider your wishes, but they keep the flexibility to respond to whatever is happening in the family at the time.

When is a discretionary trust useful?

• Protecting an inheritance from a beneficiary's divorce, debts or bankruptcy
• Providing for someone whose circumstances may change — without locking in a fixed share now
• Leaving money for children or grandchildren while letting trustees decide when they are ready for it
• Keeping family wealth flexible across more than one generation

How it works in your will

You (the testator) set aside part of your estate in the trust, name the potential beneficiaries, and appoint trustees to manage it. The trustees hold and invest the money and decide on any payments. The trust can run for many years, and the trustees can usually choose to close it and pay out the remaining money once it is no longer needed.

Things to consider

• Choose trustees who are reliable and impartial — they hold real power. It is wise to appoint at least two.
• There are some running costs, and discretionary trusts have their own tax rules, so they tend to suit larger or more complex situations.
• A clear letter of wishes makes the trustees' job much easier.

A discretionary trust is one of several trusts you can include in a will — others include the life interest trust and the vulnerable person's trust. Our guided questionnaire can set up common trusts, and every will is checked by a qualified solicitor. For more complex arrangements, book a call with our team.