Trusts have a variety of different uses in wills. Most of these are relatively well known by will writers, however there are times where very specific facts could warrant the use of a trust. In this regular feature of the newsletter will cover situations where a trust could be recommended to a client that you might not have thought of.
This week, we will look at a situation where you may consider using a discretionary trust where a will is urgent.
Mrs Johnson is to undergo a high-risk operation next week. She knows that she wishes for her estate to be distributed between her sisters, her nieces, her nephews and a number of friends but cannot decide on the exact percentages that the beneficiaries should inherit. She is unmarried, has no children or surviving parents and does not wish for estranged brother to inherit.
What’s the problem?
For another client, you may wish to give them time to decide on the exact beneficiaries. Time is of the essence in this case however as she needs a will in place to avoid her brother inheriting under the rules of intestacy. A possible option could be a simple will passing all assets equally between the beneficiaries, but Mrs Johnson does know that she does not want all her beneficiaries to be treated the same.
To ensure that Mrs Johnson has a will in place, should the worst happen, the estate could be passed to a discretionary trust naming all the people that she wishes to benefit as potential beneficiaries. A letter of wishes could also be drawn up giving advice to the trustees on how they should benefit the beneficiaries of the trust, for example by stating that some should inherit more than others but that she is unsure of the exact amounts, which can be left the trustees’ discretion.
Given that the distribution is left to the trustees’ discretion, independent trustees would be advisable to ensure that her wishes are followed.
If Mrs Johnson recovers from her surgery, she could consider rewriting her will at a later date once she decides on an exact distribution. Alternatively writing a new letter of wishes with more precise distributions as the discretionary trust would offer her flexibility to amend the amounts each beneficiary receives without needing to make a new will. She would however need to make a new will if she wished to add beneficiaries in the future unless the trust provided the trustees with a power to add beneficiaries.
A discretionary trust could also be utilised in similar circumstances where time constraints may warrant getting a will in place soon, such as if the client is terminally ill, going on holiday or is involved in high risk leisure activities.
If you would like any further advice on this, please don’t hesitate to contact us at [email protected].