A General/Standard Discretionary Trust has a wide range of uses from protecting assets from the beneficiaries themselves, or third parties seeking money from the beneficiaries. As the assets are held by the Trust, it is out of direct reach of the beneficiaries and is not considered as part of their estate.
However, for the Trust to work in this way, there must be more than one beneficiary of the Trust, otherwise the assets are deemed to be owned by that one beneficiary, making this level of protection ineffective.
The General Discretionary Trust is useful for making provisions for a dependant, or any other person(s) who could claim under the Inheritance (Provisions for Family and Dependants) Act 1975, without them directly inheriting. This reduces the risk of a successful claim against the estate. This could, however, leave the Trustees in a difficult position of being pressured by this beneficiary.
The Trust offers protection from beneficiaries who may have various issues and/or habits that the testators do not want their money to be used on, such as drinking, gambling, drugs and potential divorce. It can also be used in cases where the testators wish their children to inherit at an age over 25. If a direction is placed in the Will for beneficiaries to inherit at an age over 25, when they reach 25 HMRC will deem the beneficiaries entitled to the funds held by the Bare Trust and will be seen as part of their personal estate. Whereas with a Discretionary Trust, this is not the case as the beneficiaries have no entitlement to the funds in the Trust.
Because the Trust gives the Trustees complete control over the assets, it is advisable that the Testator writes a detailed Letter of Wishes to accompany the Will for the Trustees to use as guidance. It must be remembered however, that this is not legally binding. Examples of common wishes include receiving certain amounts of money at particular events, advance capital for mortgage and/or education.
It is advisable when using the Discretionary Trust that Professional Trustees are used as they are more likely to follow what the accompanied Letter of Wishes states. However, with wishes such as a beneficiary must have been clean of drugs for a specified amount of time, this is difficult for a professional to asses. It is also advisable that a potential beneficiary of the Trust is not appointed as a Trustee.