A discretionary trust is one where the trustee has complete discretion to decide how (and if) the income and capital of the trust fund is distributed. As a result, it can provide more flexibility than other types of trust — the trustees can respond to future circumstances as and when they arise.
In administering a discretionary trust, the trustees will often be guided by the settlor, as to the distribution of income and capital. This is usually provided by way of a 'letter of wishes'. This letter may be amended from time to time or totally revoked but, whilst it is a good guide to the trustees, it is not legally binding.
Inheritance tax (IHT)
Discretionary trusts will almost always fall into the IHT regime known as the 'relevant property' regime. IHT is charged when
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Web page updated on 17 Mar 2025 13:26