Abacus offers a market-leading service for the establishment and management of trusts, either as stand-alone solutions or as part of a broader structuring.
Our services are tailored to each individual or family’s particular needs. Here, our client services team provide some practical examples of who would use a discretionary trust and why.
Protecting wealth for future generations
- Scenario: A wealthy business owner wants to ensure their children and future grandchildren are well-provided for but is concerned about giving them too much money too soon. The worry is the beneficiaries may not be financially responsible or may face challenges like divorce or financial troubles.
- Solution: A discretionary trust is established in a Will, naming the children and grandchildren as potential beneficiaries. Professional trustees are instructed to manage the assets and make distributions at their discretion.
- Outcome: The trustees provide for the children's education, housing, and living expenses, but they hold back significant distributions until the children are older and more financially mature. Additionally, the trust assets are protected from potential claims by creditors or ex-spouses of the beneficiaries, ensuring the business owner’s wealth is preserved for future generations.
Supporting a vulnerable beneficiary
- Scenario: An individual has an adult child who suffers from a mental incapacity and is unable to manage their finances. The parent wants to ensure their child is taken care of after their passing, but is concerned direct access to an inheritance could lead to financial abuse or exploitation.
- Solution: A discretionary trust is established with the settlor’s child a beneficiary. Professional trustees have the discretion to provide funds for care, living expenses, and medical treatment. A Letter of Wishes is included to guide the trustees on how best to use the funds.
- Outcome: The trust ensures the vulnerable adult is well cared for throughout their life, while protecting the assets from being misused or misappropriated by others. The trustees can tailor their support based on the beneficiary’s needs as they evolve over time.
Protecting family wealth from divorce
- Scenario: A high-net-worth individual wants to leave a significant inheritance to her daughter. However, she is concerned about the possibility of her daughter going through a future divorce, which might result in her ex-spouse claiming part of the inheritance.
- Solution: The mother places her assets into a discretionary trust for the benefit of her daughter and future grandchildren. The trust is structured so her daughter will benefit from the income and capital at the trustees’ discretion, but she does not have direct ownership of the assets.
- Outcome: If the daughter goes through a divorce, the assets in the trust are protected from being included in the divorce settlement because they are not under her direct control. The trustees can continue to provide for her financial needs while safeguarding the family wealth from being divided in court.
Providing for multiple beneficiaries with different needs
- Scenario: A widow with three adult children wants to leave her estate to them equally. However, each child has different needs and circumstances - one is financially independent, another is going through a financial rough patch, and the third is still in school.
- Solution: A discretionary trust is established in the widow’s Will. The trustees are given discretion to make unequal distributions based on the child’s needs. The financially independent child receives minimal support, while the other two children receive distributions to cover living expenses and education.
- Outcome: The trust ensures the widow’s estate is distributed in a way that benefits each child according to their unique circumstances. The assets are protected from mismanagement, and any unused funds remain in the trust to provide for future needs.
Providing long-term support for charities
- Scenario: A philanthropic client wants to support several charities after his death but is unsure how much each charity will need or how his estate should be divided. He also wants to ensure his family members are provided for first.
- Solution: A discretionary trust is established, naming his family members and a few key charities as potential beneficiaries. The trustees are instructed to prioritise his family’s financial needs, with any surplus assets allocated to the charities over time. The trust deed gives the trustees flexibility to adjust the amounts distributed to the charities based on their needs and funding levels.
- Outcome: The trustees can distribute assets to the client’s family while also supporting his chosen charities as the estate grows or changes in value. This flexibility ensures that both the family and charitable needs are met as circumstances evolve, providing appropriate funding to the charities without jeopardising the family’s financial security.
Tax-efficient wealth transfer for a business owner
- Scenario: A successful business owner plans to retire and pass her shares in the company to her children. However, she is concerned about the potential tax liabilities associated with transferring the shares outright and she wants to ensure her children can manage the business responsibly.
- Solution: The business owner transfers her business shares into a discretionary trust, with her children as beneficiaries. Professional trustees manage the shares on behalf of the children. The children benefit from the income generated by the business, while the trustees retain control over the shares.
- Outcome: The trust allows the business owner to transfer her wealth in a tax-efficient manner, potentially minimising capital gains tax or inheritance tax. In the meantime, the trustees manage the business shares until the children are ready to take on more responsibility, ensuring the business is well-managed during the transition.
Asset protection for a global family
- Scenario: A wealthy expatriate with assets in multiple countries wants to protect his international wealth from political instability and varying tax regimes. He also wants to ensure his children, who live in different countries, can benefit from his estate.
- Solution: An offshore discretionary trust is established in the Isle of Man to hold his global assets. His children are named as potential beneficiaries, and the trustees have the flexibility to make distributions as needed, considering each child’s local tax rules and financial situation.
- Outcome: The client’s assets are protected from political risks and tax changes in his home country or other jurisdictions where his children reside. The trustees can distribute funds to his children in a tax-efficient manner based on their country of residence, ensuring the global estate is preserved and transferred smoothly.
No action should be taken on the basis of this note, nor should it be construed as amounting to tax, legal or VAT advice. Suitable, specific and professional advice should always be obtained in respect on any particular issue.
