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Discretionary Trusts legal guide



Sun 8 October 2023 Discretionary Trusts legal guide

With a discretionary trust the trustees have the discretion to decide how and when to distribute the trust assets to the beneficiaries and the beneficiaries do not have an automatic right to the trust assets, and their entitlement can sometimes vary depending on the trustees' decisions. The objectives are often long term and with an emphasis on flexibility. The careful choice of trustees is hugely important in setting up any type if trust but even more so with a discretionary trust, where trustees will be generally be given wide powers. 

If you are considering a discretionary trust, either during your lifetime or as part of your will, experienced advice and careful planning are strongly recommended. We have a number of trusts specialist lawyers, so please do get in contact to discuss how we can help.

Reasons for setting up a discretionary trust

We find that most clients who want to create a discretionary trust do so because of concerns about family issues. They are seeking to preserve value for the beneficiaries and possible future generations. Reasons commonly include :-

Discretionary trusts can be expensive

Whilst it is possible to appoint 1 or more of the beneficiaries as your trustees, this can create significant friction and in many cases, clients who opt for a discretionary trust decide that the best and safest approach is to appoint professional trustees, such as lawyers or accountants.

This also has the benefit of high standards of decision making and professional accountability if the trustee is negligent. With a  long term discretionary trust, most professional trustees will charge an annual retainer, and this may be a consideration depending on the value of the trust fund.

Tax is almost always a prime consideration. Anti-avoidance legislation applies to family trusts where the settlor retains any interest in the assets and the assets will be included in the estate for Inheritance Tax (IHT) purposes. Family trusts are also charged tax of up to 6% of the value of the assets every 10 years and upon exit.

Family Investment Company - an alternative to a discretionary trust?

One of the most popular current alternatives is to create a Family Interest Company (FIC). Key things worth noting include :-

Solicitors for setting up and administering a discretionary trust

We have a team of very experienced trusts lawyers. Expertise includes :-


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Legal 500
Lexcel
Law Society Personal Injury
Modern law awards winner 2023
Law Society Conveyancing Quality
The British Conveyancing Awards - Rebecca Kelly
The British Conveyancing Awards - Mustafa Hassan
ISO 27001
ISO 9001
LEAP Modern Law Conveyancing Awards
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