A discretionary trust splits ownership of property into two parts: trustees hold the legal title and manage the assets, while beneficiaries hold the right to enjoy them. Unlike a fixed trust, trustees decide who benefits and when, making discretionary trusts a flexible tool for estate planning. This article will explain the underlying principles of trust law. It will also explain discretionary trusts and their commercial relevance, particularly in a family business context. Finally, it will explain the process for creating a discretionary trust.<\/p>\n\n\n\n
To understand how trusts operate, you first need to understand the law behind property ownership.<\/span><\/p>\n\n\n\n Generally, if you own an item of property, you are free to use it as you wish<\/span>. This includes houses, cars, and money. You will be the ‘beneficial owner’ of the property if you can both: <\/p>\n\n\n\n Trusts are sophisticated legal vehicles that take the concept of beneficial ownership and split it into two parts, which are:<\/span><\/p>\n\n\n\n The person that creates the trust will be someone who has beneficial ownership in the property. This person is called the \u201csettlor\u201d. <\/span><\/p>\n<\/div>\n\n\n\n The settlor will take the property (\u201ctrust property\u201d) which he intends to hold \u201con trust\u201d and do two things with it:<\/span><\/p>\n\n\n\n Usually, the trust property will contain a combination of money, shares in companies, and \u201creal property\u201d like land and buildings. The trustees will then have a legal obligation to manage the trust property according to the terms of the trust. A document known as the \u201ctrust document\u201d or \u201ctrust deed\u201d will detail the terms of the trust. <\/span><\/p>\n\n\n\n Additionally, the trustees will need to have the legal title so that they have the authority to manage the property by buying, selling, and reinvesting the property<\/a> \u2014 all ultimately in the interest of the beneficiaries. Having the legal title makes it very easy for the trustees to abuse their position and act in their own interest. So, the law imposes a fiduciary duty on the trustees. This duty ensures that trustees can only ever act in the interests of the trust and the beneficiaries. <\/span><\/p>\n\n\n\n The beneficiaries, not having the legal title, do not have the power to dispose of the trust property. This is why trusts are a useful way to ensure that a child or someone incapable of managing their own affairs can still make use of the trust property. <\/span><\/p>\n\n\n\n Discretionary trusts differ from fixed trusts in one critical way. Importantly, the beneficiaries of a discretionary trust do not have an absolute right to enjoy the trust property unless the trustees decide they do. <\/span><\/p>\n\n\n\n In practice, this means that you, as the settlor, can nominate a group of beneficiaries but then leave it to the trustees to decide who among them can actually enjoy the benefit of the trust property. This will permit the trustees to consider the personal circumstances of each beneficiary and determine if and by how much they can enjoy the trust property. Therefore, discretionary trusts are more flexible than fixed trusts. <\/span><\/p>\n\n\n\n\n\n Continue reading this article below the form\n <\/i>\n<\/a>\n1. Beneficial Ownership<\/span><\/h3>\n\n\n\n
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2. Legal and Beneficial Interests<\/span><\/h3>\n\n\n\n
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3. The Trust\u00a0<\/span><\/h3>\n\n\n\n
Discretionary Trusts <\/span><\/h2>\n\n\n\n