What are discretionary trusts?

There are different types of trusts; discretionary trust is one type of trust you might find useful for your relative and it means that:

• Your relative does not get their inheritance paid directly to them when you die,
• Your money and assets will pass to other people, called ‘trustees’, and
• The trustees hold the money and assets on trust for your relative.

You can choose who you would like to be a trustee but it is important to choose someone you think is reliable.

The trustees will decide whether or not to give your relative money; you can give the trustees instructions setting out when you expect them to give your relative money, but they can decide not to – this is why the trust is called ‘discretionary’.

The potential benefits of a discretionary trust include the following:

• Your relative will not own the money in the trust, so they will not be able to spend it quickly or unwisely.
• The money in the trust will not reduce their entitlement to benefits or increase the amount they have to pay towards social care.
• You can tell the trustees what you would like the money to be used for.

The potential negatives of a discretionary trust include the following:

• The trustees do not have to pay your relative.
• Your relative might not get all the money in the trust.
• There may be some tax disadvantages, which you would need to check with your Solicitor.

How do I set up a discretionary trust?

You can set up a trust by signing a trust deed. Someone qualified to do so, such as a Solicitor, should draw up the trust deed.

It is important to speak to a Solicitor who is experienced in dealing with wills and trusts, as they can make sure that the discretionary trust is set up in a way that both maximises the benefits and reduces the negatives.

It is important to note that laws change, so there is no guarantee that money held in a discretionary trust will always be treated the same way in the future.