Understanding discretionary
Trusts A discretionary trust is a type of trust in which the trustees decide who should benefit, when support should be provided, and the nature and extent of that support. Unlike a fixed trust, beneficiaries do not usually have an automatic right to receive trust funds simply because they are named in the trust deed. Instead, trustees use the powers given to them under the trust deed to decide how trust assets should be applied.The role of trustees
Trustees are responsible for administering the trust and managing its assets in accordance with the trust deed and the applicable law. Trustees administer the trust and manage its assets in accordance with the trust deed and the applicable law, including duties under the Trustee Act 2000 to exercise reasonable care and skill, act in good faith, and make decisions in line with the purposes of the trust.In practice, trustees may need to balance the interests of beneficiaries as a whole, comply with the trust deed, consider requests fairly, manage assets prudently, and weigh present needs against future requirements. They must exercise their discretion independently and cannot simply approve every request.
Can beneficiaries ask for financial assistance?
In many cases, yes. Beneficiaries may ask the trustees to consider making payments or providing other forms of financial assistance from the trust.Requests may relate to living expenses, housing, education, healthcare, care needs, welfare and wellbeing, or other circumstances affecting a beneficiary’s financial position. Whether trustees can make a payment will depend on the terms of the trust deed and the circumstances of the trust.
Does every request have to be approved?
No. Trustees are generally not obliged to approve every request. They may take into account the purpose of the request, the beneficiary’s circumstances, the needs of other beneficiaries, the funds available within the trust, the long-term sustainability of the trust fund, and any other relevant circumstances.Trustees must consider requests properly, but they are not required to reach any particular outcome.
Why might a request be declined?
A request may be declined for a range of reasons, including insufficient trust funds, competing needs among beneficiaries, concerns about preserving trust assets, insufficient supporting information, restrictions in the trust deed, or a view that the request would not be consistent with the proper administration of the trust. Each request should be considered on its own facts and circumstances.Why do trustees ask for information?
Beneficiaries are often asked to provide information before trustees reach a decision, such as invoices, quotations, financial information, or details of their circumstances. This helps trustees fulfil their legal duties, assess requests properly, and keep appropriate records of their decision-making.Are beneficiaries entitled to trust information?
Trustees must keep appropriate records in relation to the administration of a trust. Whether a beneficiary is entitled to receive trust information will depend on the nature of their interest in the trust and the circumstances of the particular case. Although beneficiaries may be entitled to certain information, they are not automatically entitled to every trust document.How long do trustee decisions take?
The time needed to consider a request will vary depending on its complexity, whether further information is required, the trustees’ decision-making process, and the nature of the trust assets. Where assets are invested, trustees may need to realise investments before funds can be distributed.How we can help
DWF’s Tax & Private Capital team advises individuals, families, trustees and beneficiaries on a broad range of trust and private wealth matters, including discretionary trusts, trust administration and governance, succession and estate planning, wealth preservation, and trust taxation.If you would like to discuss an existing trust, appoint professional trustees, or explore whether a trust structure may be appropriate for your circumstances, please contact a member of DWF’s Tax & Private Capital team.
