Contentious probate solicitor, Anya Hoyland, examines the issues involved in disputing a discretionary trust in a Will.
What is a discretionary Will trust?
When making a Will, people sometimes place their estate, or part of their estate, into a discretionary trust. The trust is considered “discretionary” because the Will names a number of potential beneficiaries who could benefit from the fund, and it is for the trustees managing the trust fund to decide who actually receives any money, and when they receive it.
The beneficiaries of a discretionary trust could be specific individuals but can also include classes of people. For example, it is possible to create a discretionary trust which names children or grandchildren who have not yet been born.
Why do people create them?
While a discretionary trust may seem like an odd concept given the power it affords trustees, there are many reasons why someone may wish to create one. For example, it can be useful if one of their chosen beneficiaries struggles to manage their own finances or makes poor life choices. The trustees would be able to exercise complete discretion as to whether it was appropriate for this individual to receive benefit, or whether this should be deferred. They can also be useful if a potential beneficiary is in receipt of means tested benefits which they would lose if they inherited a lump sum outright. Discretionary trusts can therefore provide a significant amount of flexibility, and the opportunity to protect assets if circumstances change.
What problems can arise?
While a testator can leave a Letter of Wishes to indicate the way in which they would like the trust to be distributed, this letter should not fetter the discretion of the trustees. In simple terms, the letter will not be considered legally binding (albeit the trustees should take it into account), and the trustees retain complete discretion in their management of the trust fund. It is this absolute discretion which often creates problems.
Disputing a discretionary trust in a Will. How we can help.
We are frequently contacted by potential beneficiaries of a discretionary trust who are dissatisfied with the way in which a discretionary trust has been managed or the actions of the trustees.
There are several ways in which we can assist potential beneficiaries. We normally start by obtaining a copy of the Letter of Wishes (if one was prepared by the testator) and seeking relevant information from the trustees. For example, we can request information in respect of how the trust fund has been administered and the reasoning behind the trustees’ decisions. We can also assist in scrutinizing the decision making of the trustees and considering further courses of action.
If a potential beneficiary has received no (or limited) benefit from a discretionary trust, then we can consider seeking additional provision under the Inheritance (Provision for Family and Dependants) Act 1975 and are often able to do this on a No Win, No Fee basis.