Why Including a Discretionary Trust in Your Will Can Help Protect Your Family’s Future
When it comes to estate planning, many people think a straightforward will is enough to pass on their assets to the next generation. But life is rarely straightforward — family circumstances change, financial risks evolve, and tax laws can shift. That’s where a Discretionary Trust can offer valuable protection and flexibility for your loved ones.
In this post, we’ll explain what a Discretionary Trust is, why it’s a smart addition to your will, and how it can help protect your assets for both your children and future generations.
What Is a Discretionary Trust?
A Discretionary Trust is a type of legal arrangement where assets are held by appointed trustees for the benefit of a group of potential beneficiaries. The key feature is that the trustees have the discretion to decide how, when, and to whom the assets or income from the trust are distributed.
For example, you might set up a discretionary trust in your will, leaving your estate to a trust for the benefit of your children, grandchildren, or other family members. The trustees would then manage those assets and decide how best to distribute them over time.
Why Consider a Discretionary Trust in Your Will?
Including a Discretionary Trust in your will offers several advantages over passing assets directly to beneficiaries:
1. Asset Protection from Divorce, Bankruptcy, or Financial Difficulty
If a beneficiary is going through a divorce, faces business failure, or has debts, assets left directly to them could be vulnerable. A discretionary trust keeps those assets outside of the beneficiary’s direct ownership, making it much harder for third parties (like ex-spouses or creditors) to access them.
2. Safeguarding Against Poor Financial Management
Not everyone is ready to manage a sudden inheritance. A trust allows trustees to make decisions about when and how much money beneficiaries should receive, reducing the risk of poor financial choices or exploitation by others.
3. Flexibility to Adapt to Changing Circumstances
Life is unpredictable. A discretionary trust provides flexibility to respond to unforeseen events — whether a beneficiary develops health issues, disabilities, or encounters financial trouble. Trustees can tailor distributions to support beneficiaries when they need it most.
4. Inheritance Tax (IHT) Planning Benefits
Although discretionary trusts have their own tax rules, they can be a useful tool for inheritance tax planning. For example, keeping assets within a trust can reduce the taxable estate of future generations, and careful structuring can take advantage of tax thresholds and reliefs.
5. Protecting Family Wealth for Future Generations
A discretionary trust can be structured to benefit not just your children, but your grandchildren and beyond. This helps preserve family wealth and ensures it’s used in line with your values and wishes, rather than being lost through remarriage, financial disputes, or mismanagement.
How Does It Work in Practice?
When you include a discretionary trust in your will, you’ll typically:
- Name your trustees — people you trust to manage the assets wisely (this could be family members, trusted friends, or professional advisers).
- Identify a class of beneficiaries — this could include your children, grandchildren, and even future descendants.
- Set out a letter of wishes (optional, but recommended) — giving guidance to your trustees about how you’d like the assets to be used, while leaving them the flexibility to adapt to changing circumstances.
Final Thoughts
While a simple will works for some, a discretionary trust can offer enhanced protection, flexibility, and control over how your assets are used after you’re gone. It’s a powerful way to safeguard your children’s and grandchildren’s futures — providing peace of mind that your wealth will support them when and how they need it most.
If you’re considering updating your will or estate plan, it’s worth discussing discretionary trusts with us to see how it could fit into your broader family protection strategy.
Need advice on setting up a Discretionary Trust in your wills?
Get in touch with our team — we’re here to help you plan with confidence.