I’m a beneficiary of a discretionary will trust – what do I need to know?

A discretionary will trust is a type of trust which people often include in their Wills where they leave either their whole estate or a specific asset (or assets) to a discretionary trust on their death.

They will include a number of beneficiaries (discretionary beneficiaries) of the discretionary trust but none of the discretionary beneficiaries has an automatic right to the trust assets or to the income.

Being named as a discretionary beneficiary means that you are within a class of potential recipients, but it does not guarantee that you will receive anything.

The role of trustees

The trustees of the discretionary trust hold the real power. They decide if and when distributions from the trust are made (if any) and to whom (out of the pool of discretionary beneficiaries).

• You cannot demand a benefit, even if all of the other discretionary beneficiaries received one.
• Trustees must act properly and in good faith.
• They are required to consider all discretionary beneficiaries, but not necessarily equally.
• They do not have to explain why they chose one over another.

However, if trustees fail to consider you at all, or if they breach their duties, it may be possible to challenge their decisions, but this can be complex and costly.

Letters of wishes

The person who has died will usually leave a letter of wishes which sits alongside the will. This sets out why the assets were placed in the trust and how and when the trustees should distribute them. Trustees usually take the letter of wishes into account, but they are not legally obliged to follow it. They can depart from the instructions in the letter if they believe it is appropriate.

Tax implications

Because you are not automatically entitled to the trust assets, your tax affairs are not affected by the existence of the trust. Tax only arises if and when you receive a distribution from the trust.

Why discretionary trusts are used

One reason that people often set up discretionary trusts in their wills is to protect their assets. As a discretionary beneficiary, you do not own the trust assets and so creditors cannot access them, and trustees can decide not to distribute assets to someone who may be particularly vulnerable at that time (for example, due to or addiction).

Your rights as a discretionary beneficiary

While you cannot demand distributions, there are ways you can engage with the Trust. You can:

• Make trustees aware of your current circumstances so they can consider them when making decisions about distributions
• Request that you be considered for a distribution
• Request a copy of the deed (though trustees are often not required to show you this)

If you are a beneficiary of a discretionary trust, it would be best to understand it as being a possibility (not a promise) that you may receive a distribution.

If you would like to learn more about including a discretionary trust in your will, or if you are a beneficiary of a discretionary trust and would like guidance, please contact our legal services team who can help you understand your rights and navigate the complexities of trust administration. Contact us here.