Trustees of a discretionary trust are vested with the authority to determine both the amount and timing of distributions to beneficiaries of the Trust. All earnings and investments are disbursed solely at their whim. This provides more leeway and safeguards assets in the event of a change in circumstances. A letter must provide specific guidelines to ensure that the trustees carry out your concluding instructions.

There are several instances where a discretionary trust might be pretty useful. They’re flexible enough to meet your requirements while providing for your loved ones and your estate. In addition, they serve an important function in providing security for beneficiaries who cannot handle their financial assets. The trustees have the authority to adjust the benefits the beneficiaries receive from the Trust whenever they deem it necessary or suitable. Finally, the assets of a corporation or business can often be shielded from the reach of creditors or a divorced spouse by establishing a discretionary trust.

Income Tax: Without giving up control of the assets held by the Trust, the Trustees can share the income from the Trust’s assets with the rest of the family, taking advantage of their personal allowances and lower tax bands.

Capital Gains Tax: If you give an asset that has gained in value considerably to a close family member, you may incur a Capital Gains Tax (CGT) liability. On the other hand, if you use a trust, you may be able to substantially lessen these charges or delay them in a tax-efficient approach.

Inheritance Tax: A husband and wife can invest two times the nil rate Inheritance Tax (IHT) band (currently £650,000) into a Trust every seven years without IHT fees under provisions of the law. This sum, as well as any amounts that are more than it and are dependent on the value of the nil rate band, will be shielded from any potential future inheritance tax charges for the duration of the Trust’s existence. When certain business reliefs apply or if the person making the gift has extra income, they may be able to put more money into a trust. If the person making the gift survives for seven years after making the gift, the asset’s value will not be included in the estate for IHT reasons. If they don’t survive, exemptions may still apply, and asset value gains after the gift should remain tax-free.