Discretionary trust

Mr and Mrs X contacted Kwil to discuss making wills. They were both in their early fifties with three children in their mid-twenties. They owned their house jointly, which was worth in the region of £500,000 and had other assets totalling around £200,000. They had some concerns regarding their children, and they wanted expert advice in how to deal with those concerns.

They were referred to one of our SRA regulated solicitors who was able to make note of their concerns as follows:

1. Eldest daughter
   Mr and Mrs X’s eldest daughter has suffered with addiction problems for many years and is currently estranged from her family. Although she has been to rehab several times, she still suffers with relapses. Mr and Mrs X love their daughter very much and want to ensure that she is looked after but are worried about leaving her an outright legacy in their wills as they are afraid it will feed her addiction problems.
2. Middle son
   Mr and Mrs X’s son is currently living with his girlfriend in rented accommodation. He finds it hard to hold down a job and unfortunately often gets himself in trouble with ‘payday’ style loans, meaning he is constantly fighting off debt. Mr and Mrs X worry that he is not responsible with money and that if he were left a large sum it would be used frivolously.
3. Youngest daughter
   Mr and Mrs X have a younger daughter who suffers with autism. She is currently living in assisted accommodation and manages her day-to-day life very well. She has a job in a supermarket and her accommodation and income is supplemented by state allowances. Mr and Mrs X are worried not just by her ability to use money wisely, but also about how her benefits may be affected by a lump sum inheritance.

Advice

After discussing Mr and Mrs X’s concerns, Kwil advised them to consider leaving their estate directly to a discretionary trust and appointing trusted friends or family to act as trustees.

This means that when the survivor of Mr and Mrs X pass away, the estate will pass into a discretionary trust and the trustees will be able to control how much, and when, any money is distributed to the beneficiaries.

The main benefit of the trust is that none of the children would have any entitlement to the trust assets. This means that the assets cannot be taken into account for means-testing or bankruptcy or divorce proceedings. The trustees would continually monitor the situation with all three children and only pay them out money from the trust as and when they think it is appropriate.

Outcome

Mr and Mrs X were greatly relieved to realise that their children would be able to benefit from their estate but without the fear that the assets would be drained in terms of bankruptcy/divorce/addiction issues. They took comfort knowing that their children would still be looked after financially by their trustees. They each selected their siblings to act as their trustees and had peace of mind that they would act in the children’s best interests. Kwil drafted their wills to include flexible discretionary trusts and Mr and Mrs X wrote a letter to their trustees, placed alongside their wills, that confirmed their concerns for each child and asking the trustees to take those concerns into account when distributing assets to the children.

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