Why aren't the details of the benefits of the beneficiaries included in the Will?

Clients often inquire why the details of what their beneficiaries will receive is not included in the Will. The specifics of who benefits from what, when, and how are recorded in the trust memorandum, not the Will. The Will simply directs the entire estate to the Trust, which is then under the control of the Trustees. This principle applies to both discretionary Trusts and Interest in Possession Trusts.

If the assets are distributed by the executors of the Will, although these distributions are binding (which some clients prefer), there would be no asset protection. Assets are handled within the Trust environment because the trustees have discretion, and this discretion enables assets to be ring-fenced and protected to the greatest extent possible.

Making Wishes Clear and Appointing Professional Trustees

It is essential to clearly outline any wishes so that the trustees fully comprehend the objectives of the settlor after their death. It is also crucial to consider appointing Trustees who will act impartially, such as a professional, instead of just family members who may have personal interests.

Regular Trustee meetings and precise minutes are crucial to demonstrate that the Trustees have exercised discretion in their decision-making process. Although the memorandum is not binding, there is no reason why the Trustees would not follow it, but it also provides a degree of flexibility, enabling them to act as deemed appropriate to maximise protection in the future. In England, Wales, and Northern Ireland, all Trustees must agree to any action taken by majority, while in Scotland, this requirement is modified unless the deed states otherwise.

Flexibility in Managing the Trust

The flexibility of the Trust is the mechanism for managing it in the most efficient manner possible. For instance, if a beneficiary became disabled, distributing assets outright or as income could impact their eligibility for state aid. The Trustees can then exercise their discretion to assist the beneficiary in alternative ways.

The Success of Trusts Depends on Trustee Management

The success of a Trust is dependent on its management and how the Trustees apply their discretion and expertise. This is another reason to consider appointing a professional Trustee.

Trustee decisions are recorded in minutes during Trustee meetings, which demonstrate the exercise of discretion and confirm that the assets remain within the protective Trust environment. These decisions can encompass the distribution of capital through loans, management of trust income, and ensuring the best rate of income tax is achieved. The Trustee minutes also provide confirmation to the Inland Revenue, Local Authorities, and third-party creditors that the Trust is under the control of the Trustees and that discretion has been exercised. Accurate minutes are vital to avoid the validity of the Trust being questioned and exposing the assets to third-party threats, such as divorce, creditor claims, and care fees.

In the case of “Re Hay’s Settlement,” the presiding judge, Sir Robert Megarry Vice Chancellor of the Supreme Court, emphasised that Trustees must at least consider using their powers. Although the Court cannot force a Trustee to take a specific action, the Courts will ensure that the Trustee considers all available options from time to time. By holding Trustee meetings, the Trustees can show the Beneficiaries of the Trust and the Courts that they have carefully considered all available options.

In a Nutshell

The effective use of Trustee discretion is crucial in safeguarding and optimising the Trust. Without evidence of discretion, the trust may not be able to enjoy the full protection offered by discretionary trusts. Hiring a professional trustee can guarantee that the trust is managed with professionalism and efficiency.