What is a discretionary trust in a will?

A discretionary trust is used when someone chooses to leave money or other assets from their estate. Chosen trustees manage the will to decide who the beneficiaries are and when and how they receive the contents of the trust.

How do they work?

There are many types of trusts you can create in your will. A discretionary trust is when you leave part of your estate to a trust, deciding who the beneficiaries will be including people who aren’t born yet. This allows you to put provisions in place for any future grandchildren you may have after you pass away.

Your appointed trustees can decide which of the potential beneficiaries you have named can receive assets from the trust. The decision is up to their discretion, hence the name ‘discretionary trust’.

If you unsure how you want to distribute your estate, or are worried about future circumstances that could influence your choice, a discretionary will is a good solution. It allows you to give the choice to people who you trust to make the right decision on your behalf. 

When creating a discretionary trust, make sure you state exactly which assets you want to include and the names of potential beneficiaries. For example, you could state that you want to leave £1000 to any future grandchildren born after your death.

Letter of wishes

You may leave a letter of wishes alongside the trust will, which allows you to give some guidelines to your trustees to follow. You can use this letter to advise them when and how you would like the beneficiaries to receive their inheritance. The trustees generally follow this guidelines, but it is up to their discretion. If they feel it is the best interest of the beneficiaries to adapt or change your wishes, they can do so.

For example, you may state that each of your grandchildren is to receive their inheritance on their 18th birthday, but your trustee may feel that one of them is financially irresponsible, and can choose to withhold their inheritance until they are ready.

Protecting assets

As your trustees have complete control over releasing your assets to your beneficiaries, it allows you to potentially leave your estate to people who may:

• Be unable to manage their own affairs, due to age or lack of mental capacity

• Receive means-tested benefits which would be affected by inheritance

• Risk wasting their inheritance due to mental illness or other health issues

• Be in a relationship with someone who may be controlling and therefore try to influence their spending

• Be financially irresponsible 

Because of this, discretionary trusts allow you to leave your estate to people who are well looked after by your trustees, which gives you peace of mind that your beneficiaries will receive their inheritance responsibly.

How do I create a discretionary trust?

The easiest and most common way to create this kind of trust is to include it in your will. Speak to your solicitor about your circumstances to find out the best way to incorporate the trust into your will.