In a standard Will, gifts are usually a fixed sum of money or a percentage of your estate. There is no flexibility if the circumstances of your beneficiaries change. A Discretionary Trust provides flexibility for how assets in the trust fund are used. Trustees will decide and consider the needs of beneficiaries at the time.

Trust Fund: Can be the whole or a share of
your estate (property, savings, investments), or specific assets or sums of money.

Beneficiaries: Individuals, a group of people
(e.g. my siblings) or charities.

Trustees: Decide when to give money or assets to beneficiaries based on circumstances at the time. Trustees have legal responsibility for the trust.

Letter of Wishes: This document sits alongside your Will and helps your trustees to understand your aims for how the trust fund should be used.

You can appoint family and friends (including beneficiaries) but you must be confident they will act fairly. Between two and four trustees should be appointed. Alternatively, you can appoint a professional trustee for neutrality and expertise.

Assets are protected because the beneficiaries do not own the trust fund assets. Trustees will only make distributions if they think it is wise. This means your legacy is better protected from third parties or being squandered by beneficiaries.

Discretionary Trusts have specific rules regarding Income Tax, Capital Gains Tax and Inheritance Tax. Your trustees may need to seek financial, legal, or tax advice to manage the trust correctly and tax-efficiently. These costs are deductible from the trust fund. You may consider such costs to be incidental and outweighed by your reasons for including a trust and the benefits this can bring.

• The starting value is the value of the trust fund received from the deceased’s estate.
• If the starting value is less than the Nil Rate Band (currently £325,000) then no exit charges will apply in the first ten years.
• The trust fund will be revalued every ten years and IHT charged up to 6% of the value if the amount exceeds the Nil Rate Band and reliefs at the time.
• When the trustees make payments to beneficiaries, an exit charge may be applied if the value of the trust exceeds the Nil Rate Band. The amount payable will be calculated based on the length of time held in trust since commencement or if after
  ten-years has passed the most recent ten-year anniversary date.
• Within the first two years of the deceased’s death, the trustees may avoid exit charges by utilising s.144 of the Inheritance Tax Act. If the trust contains residential property owned by the deceased, the trustees may choose to appoint out the property to qualifying beneficiaries for the Residence Nil Rate Band to be claimed.
• After this time, trustees may make distributions from the trust fund without an exit

• The death of the testator does not create a charge to CGT.
• The trustees receive the trust fund at Probate value – known as the trustees base cost.
• Charges to CGT arise when property or other assets (providing not exempt) are sold or transferred to beneficiaries and where there has been an increase in value above the trustees base cost.
• Trustees have an annual allowance of £6150. If there are multiple trusts, the allowance is shared between them.
• The CGT rate for trustees is 20% and 28% for residential property.

• On the first £1000 of income received annually, the trustees will pay tax on this at the standard rate of 20% and 7.5% on dividends.
• After this, trust income is taxed at 45% and 38.1% on dividends.
• If the trustees make an income payment, the net amount is passed to the beneficiary. The trustees must keep sufficient funds to pay the tax and issue the beneficiary with an R185 form that can be used in his/her own self- assessment.
• Depending on the beneficiary’s income tax rate, he/she may be able to reclaim some or all of the tax paid by the trustees.