Updated
GL-D-06
Glossary · Structures and trusts
Discretionary trust - the trustee decides who receives what
01 / In 30 seconds
The short answer
- What it is
- A trust in which the trustee decides which of the class of beneficiaries to pay and how much
- How it differs
- The beneficiary has no fixed share — only the possibility of receiving a distribution
- What guides the trustee
- The terms of the trust and the settlor’s letter of wishes
- Why this structure
- Flexibility: the structure adapts to the family’s changing circumstances
- What to remember
- Flexibility does not mean opacity — beneficiaries are disclosed
02 / In plain words
What Discretionary trust means
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.
A case from practice
When preparing for a programme, a client was a beneficiary of a discretionary trust created by their family. The reviewers needed an explanation of the structure, the roles and the origin of the assets. The documents and explanations were prepared in advance — the application went through without protracted questions.
When such a structure is considered
- Providing for children of different ages
- Protecting family assets
- Supporting relatives when needed
- Planning for several generations
- Situations with unpredictable circumstances
- Reviewing a client’s existing structure
03 / What it covers
How the structure works
Decisions
- Made by the trustee
- Within the terms of the trust
- Taking the letter of wishes into account
Beneficiaries
- A defined class of persons
- No fixed shares
- The possibility of a distribution
Control
- Protector
- The trustee’s fiduciary duties
- Reporting
Taxes
- Regime in the trust’s country
- Regime for the beneficiaries
- Obligation to declare
04 / How it works
How it works
The settlor sets the terms
Goals, assets, family circle.
The class of beneficiaries is formed
Who may receive payments.
The trustee makes decisions
A licensed professional trustee.
Distributions at discretion
Payments under the terms and the letter of wishes.
Reporting and disclosure
Reports and disclosure to banks and regulators.
05 / Key facts
What you need to know
01What it is
Payments at discretion
The trustee decides which beneficiaries receive payments, when and how much.
02Beneficiary's share
Not fixed
A beneficiary only has the possibility of a payment if the trustee decides so.
03The trustee's guide
Letter of wishes
The settlor's letter of wishes is not binding but explains their logic and priorities.
04Transparency
Beneficiaries are disclosed
The flexibility concerns payments: the circle of beneficiaries is disclosed to regulators and banks.
Common mistakes
Treating the trust as a way to hide beneficiaries
Assume beneficiaries are disclosed to banks and regulators.
Not writing a letter of wishes
Set out the settlor's logic and priorities for the trustee.
Choosing a trustee without checks
Check the trustee's reputation, licence and experience.
Keeping control in practice
Hand decisions to the trustee, otherwise the structure gives no protection.
06 / Expert advice
How to prepare in advance
Such structures are created with a lawyer specialising in succession planning, and the tax consequences in the countries of residence of all beneficiaries are always checked. The letter of wishes is written with real substance — it is what explains the settlor’s logic to the trustee when the settlor can no longer be asked.
What we do for you. If you are a beneficiary of a trust, this almost always comes up in due diligence and at the bank. We prepare a clear documented explanation of the structure in advance — what it is, who the parties are, where the assets came from — so that the question does not hold up the application.
Dmitry NagyTax consultant, international taxation and compliance (ex-Big4)
07 / Questions
Frequently asked questions
A trust in which the trustee decides, at their discretion, which of the class of beneficiaries to pay and how much.
There is no fixed share. There is a possibility of receiving a distribution if the trustee decides to make one within the terms of the trust.
A document from the settlor explaining their logic and priorities to the trustee. It is not binding but serves as the main guide.
A family’s circumstances change over time. Fixed shares set many years ago may turn out to be a poor solution.
No. The class of beneficiaries is disclosed to regulators and banks. Discretion concerns the distribution of payments, not transparency.
It depends on your country of tax residence: it may require you to declare and may tax distributions received under its own rules.
INITIAL ASSESSMENT
Tell us what outcome your family needs
We will design a solution for your case, choose the country and the right status, and take the whole process through to the result.
