When writing your Will, you may include a Trust for certain portions of your estate, such as cash gifts or property. Alternatively, you may be acting as an Executor or Trustee for a Will that includes a Trust.
One type of Trust is a Nil Rate Band Discretionary Trust (NRBDT). This blog will answer frequently asked questions about this type of Trust, Nil Rate Bands, and Discretionary Trusts in general.
What is a Nil Rate Band Discretionary Trust?
A Discretionary Trust is one where the Trustees named in the Will have power over how the allocated inheritance is spent. The details of their involvement will be laid out in the Trust document; in the case of a Will Trust, the Will becomes this document. Many people don’t understand that the Will is the Trust document and go looking for other documentation.
Depending on the wishes expressed in the Will, Trustees may be able to decide:
What gets paid out (e.g. whether the total amount will be paid in full or in instalments)Which beneficiary receives the inheritance – if, for example, ten beneficiaries are named in the Trust, the Trustee(s) may only choose to pay some of these, or they may pay all of them equally. It’s completely at their discretionHow frequently payments are madeWhether there are any conditions as to how the money will be spent
This means that if there is a change in circumstances or financial concerns, the Trustee can protect the deceased’s assets. Most commonly, Discretionary Trusts are created to provide for a future need, such as someone who may need more financial help than other beneficiaries, or for a beneficiary who is not capable of dealing with their finances independently.
Can a Trustee remove a beneficiary from a Discretionary Trust?
Beneficiaries are chosen by the Settlor (the person who placed the assets into the Trust) and upon their death. There is no need for the Trustee to remove any beneficiaries, as they have the power to decide whether or not they will be paid. In addition, the Trustee can choose to delay the pay-out until a time they feel is appropriate.
What rights do beneficiaries have under a Discretionary Trust?
The Trustee(s) must act in the best interests of all the beneficiaries. However, as they have the right to decide how much and when income gets paid out, they also have the right to bypass beneficiaries if they feel they are not able to inherit responsibly. A Letter of Wishes can be placed with the Will and Trust document to express how the Trust should be dealt with. It’s worth considering that a Letter of Wishes is not legally binding; however, your Will and Trust document are.
Beneficiaries can request information from Trustees regarding why they have made a decision or when a decision will be made. However, Trustees may refuse to answer. Trustees need to ensure they have acted in the best interests of the Trust and beneficiaries.