Solicitors Specialising in the Creation and Administration of UK Trusts 
A discretionary trust is one of the most flexible and widely used trust structures in the UK. It allows trustees to decide how, when, and to whom distributions are made from the trust fund. This flexibility makes discretionary trusts particularly useful for families who want long‑term protection of wealth, support for vulnerable beneficiaries, or tax‑efficient estate planning.
At Bonallack & Bishop, our specialist trust solicitors advise on the creation, administration, and winding up of discretionary trusts. We also act as professional trustees where an independent, trusted adviser is required.
To speak to one of our specialist Trusts lawyers, please call FREEPHONE 0800 1404544 or one of our local office numbers [see below] for FREE initial phone advice and a no obligation quotation
Our Trust Specialists
Our team is headed by an extremely experienced trust solicitor, Elizabeth Webbe. She is a Full Member of STEP (known as a TEP, the highest of 7 levels of STEP membership). STEP, the 
Society of Trust and Estate Practitioners, is a global professional body, comprising accountants, trustees and lawyers helping families with wealth management. She also has experience of lecturing to solicitors nationwide on the subject of trusts.
Why Set Up a UK Discretionary Trust?
You might choose to set up a discretionary trust for several reasons:
- Protecting family wealth where beneficiaries are young, financially inexperienced, or vulnerable.
- Providing long‑term financial support without giving beneficiaries unrestricted access.
- Allowing trustees to respond to changes in circumstances (e.g., divorce, bankruptcy, disability).
- Managing assets for beneficiaries who receive means‑tested benefits.
- Supporting estate planning strategies, including some inheritance tax planning opportunities.
- Avoiding the risk of beneficiaries making imprudent financial decisions.
A discretionary trust provides a high level of control and asset protection because no individual has an automatic entitlement. Instead, beneficiaries may receive funds only if trustees decide it is appropriate.
What Are The Alternatives To A UK Discretionary Trust?
Other legal structures may achieve similar aims and are worth considering:
- Bare trusts – simple structures where beneficiaries have absolute entitlement.
- Interest‑in‑possession trusts – a beneficiary has a right to the income, while capital is preserved.
- Life interest trusts in Wills – often used to protect a surviving spouse while preserving assets for children.
- Family investment companies (FICs) – increasingly used for flexible, tax‑efficient wealth planning.
- Outright gifts – usually the simplest option, although they provide no control or asset protection.
Your choice depends on your objectives, tax position, and how much control you wish to retain. Our team can advise on the most suitable structure.
What Are the Disadvantages of a Discretionary Trust?
While flexible, discretionary trusts are not always appropriate. Common disadvantages include:
- Ongoing administrative complexity, including tax returns and trustee meetings.
- Potential exposure to periodic charges under the relevant property regime (including the 10‑year charge).
- Costs associated with maintaining the trust and obtaining professional advice.
- Possible tension among beneficiaries who have no guaranteed entitlement.
Bare Trust or Discretionary Trust? What Might Suit Me Best?
A bare trust may suit you if:
- You want a simple arrangement.
- A beneficiary should receive assets outright at age 18 (or 16 in Scotland).
- Tax efficiency in relation to income and capital gains tax is a priority.
A discretionary trust may be preferable if:
- You want trustees to maintain long‑term control.
- Beneficiaries need protection due to vulnerability, divorce, addiction, or debt.
- You want flexibility to adapt to future events.
How Do I Wind Up a UK Discretionary Trust?
A discretionary trust can be wound up when trustees decide its purpose has been fulfilled or when the trust deed specifies an end date. Winding up involves:
- Reviewing the trust deed and any letter of wishes.
- Obtaining valuations of trust assets.
- Settling any tax liabilities, including exit charges.
- Preparing final trust accounts.
- Distributing remaining assets to beneficiaries.
- Filing final tax returns and closing the trust’s HMRC registration.
What Are the Tax Obligations When Winding Up a Discretionary Trust?
When a trust is wound up, trustees must consider:
- Capital gains tax on assets disposed of or transferred to beneficiaries.
- Income tax on undistributed income.
- The exit charge under the relevant property regime if thresholds are exceeded.
- Reporting requirements to HMRC and compliance with the Trust Registration Service (TRS).
Our trust solicitors work with specialist tax advisers to ensure full compliance.
What Is the 7‑Year Rule for Discretionary Trusts?
If you place assets into a discretionary trust during your lifetime, it is treated as a chargeable lifetime transfer (CLT). The 7‑year rule determines whether inheritance tax becomes payable:
- If you survive seven years after making the gift into trust, no further inheritance tax is due.
- If you die within seven years, the gift may attract additional inheritance tax depending on other gifts you have made.
Is There a 10‑Year Charge on Trusts?
Yes. Discretionary trusts fall within the relevant property regime, meaning:
- A periodic charge may be payable every 10 years.
- The charge depends on the value of assets in the trust and the available tax allowances.
- Exit charges may also apply when assets leave the trust.
Can a Discretionary Trust Help to Reduce Inheritance Tax?
A discretionary trust can support inheritance tax planning, although it is not always a tax‑free vehicle. Potential benefits include:
- Limiting the amount that forms part of a beneficiary’s estate.
- Preserving wealth across generations.
- Preventing assets from increasing a vulnerable beneficiary’s inheritance tax exposure.
- Allowing controlled distributions that support tax‑efficient planning.
Who Owns the Money in a Discretionary Trust?
Legally, trustees own and control the trust assets. However:
- They must act in the best interests of all beneficiaries.
- They cannot treat trust assets as their own personal property.
- Trustees must follow the terms of the trust deed and act with absolute impartiality.
Beneficiaries have a right to be considered, but no individual beneficiary owns any part of the trust fund until the trustees decide to make a distribution.
What Rights Does a Beneficiary Have?
In a discretionary trust, beneficiary rights are limited. They include:
- The right to be considered for benefits.
- The right to proper administration of the trust.
- The right to request certain information about the trust (although not always detailed financial data).
Beneficiaries do not have an automatic right to receive money or assets.
What Is a Letter of Wishes and Do I Need One?
A letter of wishes is a separate document in which the person setting up the trust (the settlor) explains how they would like trustees to exercise their discretion. It is:
- Not legally binding.
- Highly influential in guiding trustee decisions.
- Useful where family circumstances are complex or where beneficiaries require different levels of support.
Most discretionary trusts benefit greatly from a clear, carefully drafted letter of wishes.
How Long Does a Discretionary Trust Last?
A discretionary trust can last up to 125 years, although:
- It can be wound up earlier if trustees decide.
- Some trusts created through Wills may have specific time limits.
The extended time period allows families to plan for multiple generations.
How Our Specialist Trust Solicitors Can Help
Our highly experienced team assists with the following;
- Drafting and creating UK discretionary trusts.
- Advising trustees on compliance, tax obligations, and decision‑making.
- Acting as professional trustees where independence and experience are essential.
- Managing trust accounts, investments, and distributions.
- Winding up trusts and ensuring full tax compliance.
FAQ
Can I change the beneficiaries of a discretionary trust?
In most cases, the trust deed determines whether beneficiaries can be added or removed. Trustees may have this power, depending on how the trust was drafted.
Does a discretionary trust avoid probate?
Yes. Assets inside a trust do not pass through probate, which can make estate administration quicker and more private.
Can trustees refuse to make a distribution?
Yes. Trustees must consider requests but are not obliged to approve them unless the trust deed requires it.
Is a discretionary trust suitable for vulnerable beneficiaries?
Yes. It can protect vulnerable individuals by ensuring they receive financial support without holding assets or impacting on any state provided benefits.
Do discretionary trusts need a trust tax return?
In most cases, yes. Trustees must report income, capital gains, and periodic or exit charges where applicable.
