A Discretionary trust is a legal arrangement used to protect assets, such as land, buildings or money for the benefit of the “beneficiaries” to the trust. Such assets are known as “trust property”. When a trust is created “trustees” are appointed. The trustees are legally responsible for the assets held in the trust and are required to manage the trust and carry out the wishes of the person whose assets were placed into trust. The person whose assets were placed into trust is known as the “settlor”.
There are a number of different types of trusts, one of which is a known as a “discretionary trust”. When a discretionary trust is created the settlor gives the trustees the “discretion” as to how to use the income generated by the trust, and sometimes the capital. Sometimes a discretionary trust will give the trustees the power to add the income to the capital. This power is known as the power to “accumulate” income.
So you may have young children and want to know that your share of the estate is going to pass to your children in the event of your death, while you also ensure you take into the account of the needs of your spouse so that they are not made homeless by inserting clauses into the will allowing them to have the right to reside in the property for the rest of their life, this can be with or without set rules, then in this scenario it stops your half of the estate bypassing your children in the event that your spouse gets married. Ensuring that your children benefit as you wish.
Since the trustees under a discretionary trust have wide powers it is important to give careful consideration as to who should be appointed as the trustees. If an estate is of high value or is complex it may be sensible to appoint an independent trustee, for example and trusted friend or relative.