In Arken Lifetime, users with reserved activity rights can draft a wide selection of Trusts. One of the most popular is the Discretionary Trust.
Its popularity is largely due to its flexibility, but it also offers professional advisors and their clients greater options when tax planning.
The Flexibility
The Discretionary Trust gives its Trustees the power to decide which beneficiaries receive income or capital from the Trust and when. This flexibility allows Trustees to adapt to the changing circumstances of beneficiaries when they need to. This is particularly useful when dealing with young, financially inexperienced or vulnerable beneficiaries.
The Tax Planning Benefits
Discretionary Trusts can be used as a tool to help mitigate Inheritance Tax (IHT) liabilities. This is because the assets placed in a Trust during the settlor’s lifetime can become exempt from IHT, provided the settlor survives for seven years after making the gift (although in some circumstances this period can extend to 14 years if there is additional gifting). Assets put into a discretionary trust would normally constitute a chargeable lifetime transfer (taxed at 20%)to the extent that they exceeds the Nil-Rate-Band allowance (currently £325,000).
Discretionary Trusts can also help to separate assets from being included in a beneficiary’s taxable estate at death, which can reduce the overall liability of the estate to inheritance tax.
This trust type can also help protect family wealth from risks such as creditors, divorce, or overzealous spending by beneficiaries. As the Trustees retain control over the distribution of assets, which offers greater protection for the Trust fund itself.
The Generation Jump
Research has shown that 70% of inherited family wealth is lost by the second generation and 90% is lost by the third.1 The Discretionary Trust can help when planning for different generations. This is because Trustees are able to decide when younger generations should benefit from trust assets. Which can help to preserve hard-earned family wealth for multiple generations.
Drafting Trusts is easy, with Arken.
Trusts can be complex legal documents, but with Arken Lifetime, our inter vivos Trust drafting software, the process is simplified. Designed as an add-on to Arken Professional, our industry-leading Will writing software, it shares the same intuitive, intelligent design. Featuring a user-friendly, questionnaire-style format, dual-screen functionality, and mandatory fields, it streamlines your drafting process while minimising administrative tasks and the need for data re-entry.