How much does a discretionary trust will cost?
Answers to the question “how much does a discretionary will cost?” may range from: “a few hundred pounds” to “the right to live in a family home”. Put another way, whilst there are certainly reasons to consider use of these instruments, there are reasons for caution too and alternatives which might be preferable.
- A will plus a discretionary trust may cost in the £4-700 range
- Caution should be exercised with discretionary trusts, particularly in the light of changes to tax law.
- Beneficiaries do NOT have an absolute right to assets held in a discretionary trust.
A trust is a means by which an asset is legally held by one or more parties (the trustees), for the benefit of one or more others (the beneficiaries). Thus, legal and beneficial ownership are separated.
Named beneficiaries’ rights to the contents of a discretionary trust are entirely at the discretion of the trustees.
This point really can’t be overemphasised. Beneficiaries of a discretionary trust have no legal right to anything held by that trust, only the hope of so attaining. Moreover, one cannot usually direct trustees’ actions via a will. Guidance may be given to trustees by letters of wishes; however, these are necessarily, legally non-binding, and trustees need not disclose this guidance to beneficiaries, nor need they explain their reasons for making decisions.
This is quite-different to other will based trusts, such as Life Interest Trusts or Protective Property Trusts, by which beneficiaries have certain absolute rights in law, for instance, that to live in a house, or to receive income from a portfolio of investments.
How much does a discretionary trust will cost? Cost v benefit.
From a taxation perspective, the discretionary trust is treated, as an entity, completely independent of any of its beneficiaries. As such, it is not included in any future inheritance tax (“IHT”) calculation undertaken with respect to those beneficiaries. Since such trusts may persist for up to 125 years, this presents an opportunity for IHT planning across generations.
Treatment of the discretionary trust as a completely separate entity, however, means that certain (comparatively recent) IHT exemptions, such as the Resident’s Nil Rate Band and the Spousal Exemption, may be lost when such a trust is used.
From a non-tax perspective, discretionary trusts, offer the potential for trustees to respond to the changing situation and needs of a beneficiary on an ongoing basis and through life (as opposed to a bereaved minor/young person’s trust which must be wound up when a beneficiary reaches a certain age). By extension, they may be useful where beneficiaries might be ‘harmed’ by receipt of a significant amount of money e.g. in cases of drug or alcohol abuse. They may further be useful in protecting beneficiaries from loss in divorce or bankruptcy.
Assets in a discretionary trust fund are not taken into account for means testing with respect to benefits or care home fees, so they offer a means by which to preserve such benefits or to protect them from seizure by local authorities. In the case of care home fees, and in the context of ‘spousal exemption’, a protective property trust might be preferable, however.
If you’d like to discuss any of the issues raised, contact us via www.confidencewills.co.uk for a no obligation chat.