Discretionary Will Trusts: Protecting Vulnerable Beneficiaries
We are often approached by clients who have concerns about a vulnerable family member being able manage their inheritance in the future.
The family member might have disabilities or be vulnerable in some other way (perhaps due to an addiction or severe autism or depression or be mentally or physically handicapped in some way) and would need assistance with money matters. It could also be suspected that the family member might squander their inheritance, be susceptible to unscrupulous third parties or perhaps it could have an impact on the beneficiary's entitlement to means tested benefits. The solution in these scenarios is to put in place a Discretionary Will Trust, which can provide flexibility regarding the timing and amounts distributed to the beneficiary/ies.
The terms of the Discretionary Trust are set out in the Will and would provide a list or group of people that you would like to be a 'potential beneficiary' of that Trust.
The Trustees are named in the Will (they are often also appointed as the Executors) and they are the decision makers when it comes to investment of the assets/funds in the Trust, as well as who in the group benefits, by how much, and when.
Ideally, the Discretionary Will Trust should be supported by a 'Letter of Wishes', which is essentially a private note addressed to the Trustees which sets out why the Trust has been put in place, the names of the beneficiaries that the Trustees might be encouraged to give priority to, as well as how it is envisaged that the Trust funds might be used.
Let's illustrate this with an example:
Mr Osborne is a widower and wishes to update his Will.
He has four adult children - Kelly, Jack, Aimee and Jessica. Unfortunately, Aimee is an alcoholic and has gambling problems. In addition, she has health issues which prevent her from being able to work.
Mr Osborne wants his four children to benefit equally, but is concerned that Aimee will squander any inheritance she receives due to her illness. In addition, Mr Osborne isn't keen on Aimee's boyfriend Danny and sees him as irresponsible with money.
To solve this problem, Mr Osborne could make a Will leaving:
- a quarter of his estate to Kelly;
- a quarter of his estate to Jack;
- a quarter of his estate to Jessica; and
- put the remaining quarter into a Discretionary Trust. The trust would list all of the children, any grandchildren, Mr Osborne's siblings and their children, as well as named charities, as potential beneficiaries.
The supporting Letter of Wishes would set out Mr Osborne's concerns about Aimee and that he would like the Trustees to pay the inheritance to Aimee if she has recovered fully at the time of his death. But, if Aimee is still suffering from her illness at the time of his death, then he would want the Trustees to look after her share on her behalf and use it to perhaps do one or several of the following:
- fund a holiday;
- pay for private medical treatment;
- provide her with somewhere to live;
- buy a car;
- supplement her living costs;
- otherwise promote her independence etc.
The Discretionary Trust would enable Mr Osborne to defer the decision about how and when Aimee's inheritance be distributed so that his chosen Trustees could make the decision at the time of his death and in the knowledge of facts at that time.
For individual advice and to understand more about the benefits of putting a Discretionary Trust in your Will (and the tax implications) please contact our Wills, Probate and Trusts Team.
Michelle Gavin TEP is a Partner in and Head of the Wills, Trusts and Probate team at Band Hatton Button LLP.