What are Discretionary Trusts?

A trust is a legal obligation binding a person (which can be an individual or a company) called a trustee to deal with the assets, or property of the original owner (the settlor), for the benefit of those who have been nominated by the settlor to receive the assets, who are known as beneficiaries.

‘Property’ will typically include money, investments, land or buildings and other assets, such as paintings.

Life policies can be assigned into a trust. This is done by a deed whereby the policyholder assigns the policy to trustees for the benefit of the beneficiaries. Usually, the assignment is for inheritance tax purposes.

Discretionary or Flexible Trusts provide trustees with the power to vary the beneficiaries according to family circumstances. It can cope with births and deaths in a way that Absolute or Bare Trusts cannot. The Trustees have control over the destination of the property and the beneficiary. This means the trustees can decide how much income or capital, if any, is distributed and to whom.

An immediate IHT tax charge of 20% is usually payable if the investment held in the Trust is above the NRB (Nil Rate Band).

 

What are the types of Discretionary Trust?

Discretionary trusts are also known as flexible trusts or flexible power of appointment trust.

 

Why should I hold my property in a Discretionary Trust?

Holding money investments in a trust has a variety of uses:

  • If you have no beneficiaries, or feel that there is nothing that you, currently, wish to give to. However you still wish to hold your investments in the trust.
  • For Protection, if the beneficiaries are to be someone who is mentally incapable or the donor does not wish the beneficiaries to take the capital at too young an age.
  • To mitigate some form of taxation, usually inheritance tax.
  • To pass property on to future generations but enable the settlor to retain some control over it by being a trustee.
  • To allow a claim under a life policy to be dealt with a quickly as possible.

 

How do I assign my property into a Discretionary Trust?

The first and most important step after you have decided you may want to hold your investments in a discretionary trust is to have a discussion with us to provide you with independent financial advice.

Once we have agreed what the most suitable type of trust for your particular circumstances we make an application on your behalf to place into a trust, the property, or assets that you wish to hold. This application must be signed by all settlors, trustees and beneficiaries. The signatures must also be witnessed by an independent person.

 

Want to know more?

Talk to one of our qualified financial advisers on 01553 777600 or e-mail us at enquiries@ringassociates.co.uk

Also you may want to read the articles and associated links

Her Majesty’s Revenue and Customs

(http://www.hmrc.gov.uk/pdfs/ir152.htm)

Direct.gov.uk

(http://www.direct.gov.uk/en/MoneyTaxAndBenefits/Taxes/InheritanceTaxEstatesAndTrusts/index.htm)