Discretionarytrust

In plain words

A discretionary trust is a structure in which the trustee decides, at their discretion, which of a defined class of beneficiaries to pay, when and how much. A particular beneficiary has no fixed share: only the possibility of receiving a distribution if the trustee decides to make one.

The trustee is guided by the terms of the trust and the letter of wishes — a letter from the settlor setting out their wishes. It is not a binding document, but it is what explains the logic: what the settlor considered fair, in what circumstances to support one family member or another, and which priorities to observe.

The point of the structure is flexibility. A family’s life changes: children grow up, circumstances and needs differ, and some need support more than others. Fixed shares set many years ago may turn out to be ill-suited. At the same time it is important to understand that discretion concerns the distribution of payments, not transparency — the class of beneficiaries is disclosed to regulators and banks.

When such a structure is considered

How the structure works

How it works

1. 01The settlor sets the terms
2. 02The class of beneficiaries is formed
3. 03The trustee makes decisions
4. 04Distributions at discretion
5. 05Reporting and disclosure

What you need to know

• A beneficiary has no fixed share until the trustee decides
• The letter of wishes is a guide, not an obligation
• The trustee bears fiduciary duties
• The class of beneficiaries is disclosed to regulators
• The tax regime depends on the beneficiary’s country of residence

Common mistakes

• ✕Treating discretion as a way of hiding who benefits
• ✕Not drawing up a letter of wishes
• ✕Choosing a trustee without checking their reputation and experience
• ✕Ignoring the tax consequences for beneficiaries
• ✕Keeping actual control contrary to the structure

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