A discretionary trust is a type of trust where the trustees have complete discretion to pay or apply the income or capital of the trust fund for the benefit of one or all of the beneficiaries. No particular beneficiary has an interest in the trust or an entitlement to the trust funds – they only have a potential interest until the trustees actually exercise their discretion in the beneficiary’s favour.
A discretionary trust can be included within a will. It is generally advisable for the testator to write a letter of wishes accompanying the will which provides guidance to the trustees on how they would like the trust fund to be distributed. Letters of wishes are not legally binding, therefore, there is no obligation for the trustees to follow them.
A discretionary trust can provide flexibility.