An Overview of typical uses for the Irish Discretionary Trust in a family context. In this blog post we focus on parents who wish to plan for young, incapacitated or improvident children, or those experiencing financial or other difficulties.
What is a Discretionary Trust?
In common law legal systems, such as Ireland, a Trust is a private legal arrangement whereby the settlor passes assets to a trustee, who holds those assets for the benefit of one or more beneficiaries. In a discretionary trust, the trustees apply those assets as they, in their absolute discretion, see fit, provided always that they act in the best interests of the beneficiaries and in accordance with the terms of the Trust Instrument under which they have been appointed.
Where assets have been placed into a discretionary trust, the beneficiaries have no interest in the assets for legal or taxation purposes until such time as the assets (or indeed income accruing thereon) is passed out to them.
When Might A Discretionary Trust Be Useful?
For many parents, estate planning can be very straightforward. In other cases, complexities arise which mean that some additional care and consideration must be taken when making plans. A discretionary trust can be a very useful tool in the following scenarios:-
- Parents with young children. A trust may avoid a scenario where significant wealth is placed in the hands of young people who may not necessarily have sufficient maturity to deal with it appropriately. Some parents may opt to place the assets in a discretionary trust until such time as those children reach an age of responsibility.
- Parents of incapacitated children. A discretionary trust can be a particularly useful tool in circumstances where parents wish to properly provide for a child labouring under mental or physical disability. Such a child may be unable to manage wealth if left to them outright and absolutely. A trustee can manage the wealth on their behalf, ensuring that all the needs of the child, be they social, medical, educational or other, are properly met. Putting in place a discretionary trust where the trustee holds the assets has the additional benefit of not disrupting any means tested welfare entitlements which the beneficiary in question may receive.
- Parents of improvident children. Parents often worry what might happen when wealth is left to a child who struggles to manage their own financial affairs. This may arise, for example, in circumstances where the individual struggles with addiction. Leaving the assets in trust for that individual may prevent those assets from being imprudently squandered. It can also ensure that the individual is protected, properly provided for, and often provided with an ongoing income.
- Parents of children who are experiencing financial difficulties. Placing wealth in a discretionary trust means that the wealth does not belong to the beneficiary.
- Parents of children who are experiencing marital difficulties. Parents might be reluctant to see family wealth divided up in divorce or separation settlements. Putting the assets in a trust for the benefit of their child may avoid this.
- 6 Main Duties of a Trustee
- Understanding Trustee Duties
- Factors to Consider Before Accepting a Trusteeship
How Can Pearse Trust Help?
Pearse Trust is uniquely placed to offer professional and comprehensive trustee services to our clients. Our Trust Team comprises of lawyers, accountants and tax specialist with the skills, knowledge and experience required in the effective establishment and management of trusts. We would be delighted to hear from people considering the set up of an Irish Trust and can be contacted at firstname.lastname@example.org
Disclaimer: Please note that this commentary does not purport to be a comprehensive review of creating a Trust. Detailed appropriate advice should be taken before any particular transaction is entered into.