A Discretionary Trust is a form of trust which can be set up by an individual or couple (the settlor or settlors). Two or more trustees manage the assets held in the trust for a number of potential beneficiaries. An individual can either create a Discretionary Trust in their lifetime or by will.
Who owns a Discretionary Trust?
the trustee
While discretionary trust assets are legally owned by the trustee, the trustee does not beneficially own the assets. The trustee must, however, manage and safeguard the assets for the general body of potential beneficiaries, but no beneficiary can demand an asset or income from the trustee.
What is the purpose of a Discretionary Trust?
A Discretionary Trust is a legal arrangement which allows the owner of a life policy (the settlor) to give their policy to a trusted group of people (the trustees), who look after it. At some time in the future they pass it on to some people from a group that the settlor has decided (the beneficiaries).
When would a Discretionary Trust be used?
Asset Protection A discretionary trust allows a person to hold onto their assets without being the legal owner of the property. This can have significant advantages. For example, if a creditor was to pursue the assets of a beneficiary, trust property is generally protected because the trustee is the legal owner.
Does a discretionary trust need a bank account?
Yes. Once the discretionary trust has been established and you have paid any relevant stamp duty and applied for an ABN, then a bank account should be opened for the trust in the name of the trustee.
Who benefits from a discretionary trust?
When you set up a Discretionary Trust, you identify a class of beneficiaries such as children and/or grandchildren who can receive capital and/or income from the trust at the discretion of the Trustees. No one beneficiary has an absolute entitlement to either income or capital.
Can a discretionary trust last forever?
The most favourable characteristic of the discretionary trust is its flexibility. An English discretionary trust can last for up to 125 years and income can be accumulated throughout the lifetime of the trust if desired.
Can a settlor be a beneficiary of a discretionary trust?
The Settlor cannot be a trustee and cannot be a beneficiary of the trust, and their spouse and children cannot be beneficiaries. The Settlor is usually a Lawyer or Accountant who helps the client to establish the Discretionary trust. The Settlor has no right to income or capital of the trust assets.
