{"id":173366,"date":"2022-08-03T06:29:57","date_gmt":"2022-08-03T05:29:57","guid":{"rendered":"https:\/\/legalvision.co.uk\/?p=173366"},"modified":"2025-11-13T08:47:57","modified_gmt":"2025-11-13T08:47:57","slug":"fixed-vs-discretionary-trusts","status":"publish","type":"post","link":"https:\/\/legalvision.co.uk\/business-structures\/fixed-vs-discretionary-trusts\/","title":{"rendered":"What is the Difference Between Fixed and Discretionary Trusts?"},"content":{"rendered":"\n<p><span style=\"font-weight: 400\">A trust is a relationship or structure where one person holds property on behalf of another. Trusts operate by splitting the legal title to the property and its beneficial interest. A common example of trusts is when adults will hold items of value for children until they come of age. This can be useful when you want to organise certain property to be held \u201con trust\u201d for specific people. This article explains the differences between fixed and discretionary trusts in England.<\/span><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span style=\"font-weight: 400\">How Trusts Operate<\/span><\/h2>\n\n\n\n<p><span style=\"font-weight: 400\">Trusts refer to a unique way of holding property. Property refers to anything capable of value, including:<\/span><\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><span style=\"font-weight: 400\">shares in a company;&nbsp;<\/span><\/li>\n\n\n\n<li><span style=\"font-weight: 400\">land;&nbsp;<\/span><\/li>\n\n\n\n<li><span style=\"font-weight: 400\">money; and<\/span><\/li>\n\n\n\n<li><span style=\"font-weight: 400\">bank accounts and loans.<\/span><\/li>\n<\/ul>\n\n\n\n<p><span style=\"font-weight: 400\">Trusts take the legal principle of ownership in a piece of property and split it up into two separate parts:<\/span><\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><span style=\"font-weight: 400\">the beneficial interest; and&nbsp;<\/span><\/li>\n\n\n\n<li><span style=\"font-weight: 400\">the legal title.<\/span><\/li>\n<\/ul>\n\n\n\n<p><span style=\"font-weight: 400\">When split, the law says the property is held \u201con trust\u201d, meaning that the trustee holds property on trust on behalf of the beneficiary.<\/span><\/p>\n\n\n\n<p><span style=\"font-weight: 400\">Trusts often contain at least three people:<\/span><\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>the settlor (who creates the trust and transfers the property to the trustee);&nbsp;<\/li>\n\n\n\n<li>the trustee (who holds the trust property); and&nbsp;<\/li>\n\n\n\n<li>the beneficiary (who will ultimately benefit from the property of the trust when certain conditions are met).&nbsp;<\/li>\n<\/ul>\n\n\n\n<div  class=\"box box--icon box--info\">\n    <p><span style=\"font-weight: 400\">The law of trusts is a complex area of law. It is best practice to engage a lawyer to ensure you correctly create an enforceable trust. It is important to note that all trustees are subject to a fiduciary duty to manage the trust in the best interests of the beneficiaries. A fiduciary duty is a duty of trust and confidence that one party has to another. Some common examples of relationships that entail fiduciary duties include a lawyer-client relationship or a financial advisor-client relationship.<\/span><\/p>\n<\/div>\n\n\n\n<h3 class=\"wp-block-heading\"><span style=\"font-weight: 400\">Ownership in Shares&nbsp;<\/span><\/h3>\n\n\n\n<p><span style=\"font-weight: 400\">Suppose you own a single share in a company. In this context, ownership refers to:<\/span><\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><span style=\"font-weight: 400\">the right to benefit from the property; and&nbsp;<\/span><\/li>\n\n\n\n<li><span style=\"font-weight: 400\">the right to sell, loan, gift, or use the property as collateral for a loan.<\/span><\/li>\n<\/ul>\n\n\n\n<p><span style=\"font-weight: 400\">How do you benefit from a share? Depending on the kind of share you own, you might be able to:<\/span><\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><span style=\"font-weight: 400\">receive a dividend payment;&nbsp;<\/span><\/li>\n\n\n\n<li><span style=\"font-weight: 400\">attend and vote in the shareholder meetings; and<\/span><\/li>\n\n\n\n<li><span style=\"font-weight: 400\">receive a portion of the company\u2019s equity if it is <\/span><a href=\"https:\/\/legalvision.co.uk\/corporations\/winding-up\/\"><span style=\"font-weight: 400\">wound up<\/span><\/a><span style=\"font-weight: 400\">.<\/span><\/li>\n<\/ul>\n\n\n\n<p><span style=\"font-weight: 400\">In other words, you have the beneficial interest in the share if you can enjoy its value.&nbsp;<\/span><\/p>\n\n\n\n<p><span style=\"font-weight: 400\">This is different from having the legal title, which gives you the right to dispose of the property as you wish. For instance, you can choose to sell the share to a friend and receive money. However, if you do not have the legal title to the share, you do not have the right to do this.<\/span><\/p>\n\n\n\n<div class=\"box box--icon box--info\">\n<p><span style=\"font-weight: 400\">When you have both the beneficial interest and legal title to the property, the law says you are the beneficial owner.&nbsp;<\/span><\/p>\n<\/div>\n\n\n\n<h2 class=\"wp-block-heading\"><span style=\"font-weight: 400\">Creating Trusts<\/span><\/h2>\n\n\n\n<p><span style=\"font-weight: 400\">As <\/span><span style=\"font-weight: 400\">the beneficial owner of property, you enjoy both the beneficial interest and legal title. Likewise, you have the right to split these rights into two and transfer them to other persons. A trust automatically arises when you split the beneficial interest and legal title.&nbsp;<\/span><\/p>\n\n\n\n<p><span style=\"font-weight: 400\">There are several reasons you might create a trust. We will consider three.<\/span><\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span style=\"font-weight: 400\">1. Nominating a Professional<\/span><\/h3>\n\n\n\n<p><span style=\"font-weight: 400\">In some circumstances, you might want to <\/span><a href=\"https:\/\/legalvision.co.uk\/corporations\/trustee-duty-to-invest\/\"><span style=\"font-weight: 400\">nominate a professional<\/span><\/a><span style=\"font-weight: 400\"> to act on your behalf. As such, you can transfer the legal title in your share portfolio to a financial adviser. In doing so, you give them the legal right to manage your portfolio by trading the shares to grow the portfolio.&nbsp;<\/span><\/p>\n\n\n\n<p><span style=\"font-weight: 400\">Likewise, you maintain the right to vary the terms of the trust or bring it to an end at any time. This is known as a \u201cbare trust\u201d.&nbsp;&nbsp;<\/span><\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span style=\"font-weight: 400\">2. Distributing Assets<\/span><\/h3>\n\n\n\n<p><span style=\"font-weight: 400\">Another advantage to creating a trust is that it allows you to distribute assets to specific people, in a certain way, at a certain time.&nbsp;<\/span><\/p>\n\n\n\n<p><span style=\"font-weight: 400\">For example, you may have a lot of shares in a company and wish to pass these benefits on to your grandchildren. However, you predict that the company will continue to grow. As such, it is not ideal to sell your company shares outright and give your grandchildren the proceeds of the sale. Therefore, you can declare a trust on their behalf and keep the legal title under your name but transfer the beneficial interest to them. This entitles them to receive the dividend payments, but they have no right to sell the shares. They would also benefit from you voting on their behalf at shareholder meetings.&nbsp;<\/span><\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span style=\"font-weight: 400\">3. Passing on Property Upon Death<\/span><\/h3>\n\n\n\n<p><span style=\"font-weight: 400\">A trust is also an effective way to pass on your property to others after you die in a tax-efficient manner. You can structure trusts in such a way that the beneficiaries are not required to pay estate tax on the property they receive after you die.<\/span><\/p>\n\n\n\n<p><span style=\"font-weight: 400\">For example, suppose you want some of your grandkids to benefit from your property but are unsure which ones. In your will, you can specify that some of your property will be held on trust for all of your grandchildren. Likewise, you can detail that the trustee will manage the property to determine which grandchild should benefit from the trust and how much money they should receive.&nbsp;<\/span><\/p>\n\n\n\n<p><span style=\"font-weight: 400\">In all three examples, a trust is created once ownership in the property is split so that the legal title and beneficial interest do not exist in a single person.&nbsp;<\/span><\/p>\n\n\n    <div class=\"my-7 lg:my-10 border-y-2 border-gray-100 py-7 lg:py-10 flex flex-col sm:flex-row items-start gap-10\">\n                    <img decoding=\"async\" class=\"w-52 mx-auto my-0! rounded\" src=\"https:\/\/img.legalvision.com.au\/wp-content\/uploads\/sites\/4\/2024\/12\/11035207\/Screenshot-2024-12-11-at-2.51.56%E2%80%AFpm.png\" alt=\"Front page of publication\"\n                 loading=\"lazy\" width=\"208\" height=\"298\">\n                <section>\n            <div class=\"text-2xl font-bold\">Corporate Governance Guide for SMEs in the UK<\/div>\n            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You intend to create a trust for the benefit of a class of people (your grandchildren). Yet, it is unclear who the beneficiaries are or how much they stand to receive.&nbsp;<\/span><span style=\"font-weight: 400\">Instead, you leave it to your trustee to make this decision. This is a <\/span><a href=\"https:\/\/legalvision.co.uk\/business-structures\/discretionary-trust\/\"><span style=\"font-weight: 400\">discretionary trust<\/span><\/a><span style=\"font-weight: 400\">. Importantly, your grandchildren are not beneficiaries until the trustee exercises their discretion on their behalf. Until then, they do not actually have a beneficial interest in the property. Instead, they are known as &#8220;objects&#8221; to the trust.&nbsp;<\/span><\/p>\n\n\n\n<p><span style=\"font-weight: 400\">There are different obligations and powers placed upon a discretionary trustee compared to a trustee of fixed trusts, but this is beyond the scope of this article.<\/span><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span style=\"font-weight: 400\">Key Takeaways&nbsp;<\/span><\/h2>\n\n\n\n<p><span style=\"font-weight: 400\">All trusts take the legal concept of ownership and split it into the legal title to the property and the beneficial interest in it. Notably, there are two types of trusts: fixed and discretionary trusts. A discretionary trust gives the trustee ultimate discretion over how to<\/span> distribute the trust property to the beneficiaries. In a fixed trust, this is specified by the settlor in the trust instrument<span style=\"font-weight: 400\">.&nbsp;<\/span><\/p>\n\n\n\n<p><span style=\"font-weight: 400\">If you need help navigating trusts in a commercial context, our experienced <\/span><a href=\"https:\/\/legalvision.co.uk\/business-lawyers-lp\"><span style=\"font-weight: 400\">business lawyers<\/span><\/a><span style=\"font-weight: 400\"> can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today at <a href=\"tel:+448081968584\" class=\"AVANSERnumber dynamic-number\">0808 196 8584<\/a> or visit our <\/span><a href=\"https:\/\/legalvision.co.uk\/membership\"><span style=\"font-weight: 400\">membership page<\/span><\/a><span style=\"font-weight: 400\">.<\/span><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span style=\"font-weight: 400\">Frequently Asked Questions&nbsp;<\/span><\/h2>\n\n\n\n<div class=\"schema-faq wp-block-yoast-faq-block\"><div class=\"schema-faq-section\" id=\"faq-question-1659504177660\"><strong class=\"schema-faq-question\"><strong>What is a discretionary trust?<\/strong><\/strong> <p class=\"schema-faq-answer\">A discretionary trust is a trust that gives the trustee the power to allocate the property to the \u201cbeneficiaries\u201d, which are actually referred to as objects under a discretionary trust.\u00a0<\/p> <\/div> <div class=\"schema-faq-section\" id=\"faq-question-1659504187918\"><strong class=\"schema-faq-question\"><strong>What is the difference between a fixed and a discretionary trust?<\/strong><\/strong> <p class=\"schema-faq-answer\">Under a fixed trust, the trustee will distribute the property to the beneficiaries in accordance with the terms of the trust instrument. Under a discretionary trust, the trustee has the discretion to choose which \u201cbeneficiaries\u201d (called objects) stand to benefit from the trust property and how much of the property they stand to benefit from.\u00a0<\/p> <\/div> <\/div>\n<div class=\"not-prose m-feedback-prompt\">\n    <!-- Thumbs up\/down bar -->\n    <div class=\"m-feedback-prompt__main\">\n        <div class=\"m-feedback-prompt__title\">Was this article helpful?<\/div>\n        <div>\n            <!--span class=\"m-feedback-prompt__button--text\">Thanks!<\/span-->\n            <button type=\"button\" class=\"m-feedback-prompt__button m-feedback-prompt__button--yes\"\n                    data-analytics-link=\"feedback-prompt:yes\" aria-label=\"Agree\">\n                <i class=\"fa-regular fa-thumbs-up fa-3x\"><\/i>\n            <\/button>\n            <button type=\"button\" class=\"m-feedback-prompt__button m-feedback-prompt__button--no\"\n                    data-analytics-link=\"feedback-prompt:no\" aria-label=\"Disagree\">\n                <i class=\"fa-regular fa-thumbs-down fa-3x\"><\/i>\n            <\/button>\n        <\/div>\n    <\/div>\n\n    <!-- Feedback form -->\n    <div class=\"m-feedback-prompt__form\">\n        <div class=\"m-feedback-prompt__form--thanks \">\n            <div>Thanks!<\/div>\n            <p>\n                We appreciate your feedback \u2013 your submission has been successfully received.            <\/p>\n        <\/div>\n        <form id=\"contact-form\" class=\"m-feedback-prompt__form--form\" action=\"\" method=\"post\">\n            <input type=\"hidden\" id=\"authenticity_token\" name=\"authenticity_token\" value=\"4d339a24e7\" \/><input type=\"hidden\" name=\"_wp_http_referer\" value=\"\/api\/wp\/v2\/posts\/173366\" \/>            <input value=\"https:\/\/legalvision.co.uk\/business-structures\/fixed-vs-discretionary-trusts\/\" type=\"hidden\" name=\"currenturl\"\n                   id=\"currenturl\">\n            <input value=\"What is the Difference Between Fixed and Discretionary Trusts?\" type=\"hidden\" name=\"currenttitle\"\n                   id=\"currenttitle\">\n            <label>\n                <!-- display on thumbs-up -->\n                <span class=\"m-feedback-prompt__feedback m-feedback-prompt__feedback--yes\">\n                    Can you tell us <span class=\"font-semibold\">why<\/span> you found it helpful?\n                <\/span>\n\n                <!-- display on thumbs-down -->\n                <span class=\"m-feedback-prompt__feedback m-feedback-prompt__feedback--no text-lg\">\n                    How can we better improve this article?\n                <\/span>\n                <textarea name=\"feedbackmessage\" id=\"feedbackmessage\" required><\/textarea>\n            <\/label>\n\n            <div class=\"m-feedback-prompt__form--error\" id=\"form-submit-error\"><\/div>\n            <button id=\"submit-contact-form-button\" type=\"submit\" name=\"commit\" class=\"m-feedback-prompt__form--submit\"\n                    data-analytics-link=\"feedback-prompt:submit\">\n                Submit            <\/button>\n        <\/form>\n    <\/div>\n<\/div>\n","protected":false},"excerpt":{"rendered":"<p>A trust is a relationship or structure where one person holds property on behalf of another. Trusts operate by splitting the legal title to the property and its beneficial interest. A common example of trusts is when adults will hold items of value for children until they come of age. This can be useful when<a href=\"https:\/\/legalvision.co.uk\/business-structures\/fixed-vs-discretionary-trusts\/\">Continue reading <span class=\"sr-only\">&#8220;What is the Difference Between Fixed and Discretionary Trusts?&#8221;<\/span><\/a><\/p>\n","protected":false},"author":13461,"featured_media":3158,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"_relevanssi_hide_post":"","_relevanssi_hide_content":"","_relevanssi_pin_for_all":"","_relevanssi_pin_keywords":"","_relevanssi_unpin_keywords":"","_relevanssi_related_keywords":"","_relevanssi_related_include_ids":"","_relevanssi_related_exclude_ids":"","_relevanssi_related_no_append":"","_relevanssi_related_not_related":"","_relevanssi_related_posts":"1747,171811,131970,2534,2718,2032","_relevanssi_noindex_reason":"","editor_notices":[],"footnotes":""},"categories":[36],"tags":[20,21,86,87,145,914],"class_list":["post-173366","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-business-structures","tag-small-business","tag-medium-business","tag-discretionary-trust","tag-estate-planning","tag-trust-instrument","tag-fixed-trust"],"acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v27.1.1 - https:\/\/yoast.com\/product\/yoast-seo-wordpress\/ -->\n<title>Fixed vs Discretionary Trusts in England | LegalVision UK<\/title>\n<meta name=\"description\" content=\"A trust is where one person holds property on behalf of another. 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