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Discretionary Trusts

By far the most common trust is a discretionary Trust, which grants the Trustee, absolute discretion to benefit the Beneficiaries from capital or income as the Trustee thinks fit.  

It can seem to some potential settlors, that they are giving away control of their assets, which is correct.  Without giving legal ownership to the trustees, the trust would not be valid.  However they can be offered some re-assurance that their wishes will be respected by providing to the trustees a ‘Letter of Wishes’.  While this is not a legally binding document, it sets out how the Settlor would like the Trustees to exercise their powers and thus provides useful, practical guidance to the Trustees when they are considering the exercise of their discretions.  It often provides the Settlor with some comfort that the Trustees will bear his wishes in mind during their trusteeship.  

Further comfort can be gained by the Settlor appointing a ‘Protector’ to the Trust who can be given the powers that the Settlor wishes.  Often a close friend or family member, the Protector will be aware of how the Settlor would have liked the Trust to be administered and will liaise closely with the trustees to ensure the Trust assets are properly distributed.    

Discretionary trusts are often a useful tool in tax planning, though professional tax advice should be taken to ascertain the most tax efficient methods suitable to the circumstances of each particular case.

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