The Discretionary Trust
Achieves:
The most flexible method of protecting and maximising wealth.
Requires:
Not normally used by UK resident and domiciled individuals. Anyone else in the world can consider this structure.
How it works:
A Guernsey discretionary trust is governed by the laws of Guernsey however is based on English Trust Law. The settlor establishes the trust by transferring the initial settled funds to the trustee (Marlborough Trust Company) and executing a trust deed which contains the rules, guidelines and powers of the trustee, the initial funds are usually a nominal figure of say £10. After this point the settlor can add funds as required. Beneficiaries are appointed at the inception of the trust and can either be specifically named in the trust deed or alternatively a class of beneficiaries can be appointed, for example, the issue and remoter issue of Mr & Mrs Smith.
From the point that the trust is settled the assets then belong to the trustees and all decisions about how to manage the funds are made by them although the settlor and / or beneficiaries can make suggestions or requests. If the settlor wishes to maintain a monitor over the trustees or has a trusted advisor who can assist the trustees in their decision making then it is possible to appoint a protector to the trust who has the power to give consent over some of the more important decisions of the trustees.
A discretionary trust can have tax advantages as the assets that are placed into trust no longer belong to the settlor and this can be useful in some planning circumstances. However this type of entity would not be suitable for UK resident and domiciled individuals in normal circumstances as the Inland Revenue penalise the establishment with an immediate tax charge. The most common use for discretionary trusts is for non-UK domiciled individuals to shelter their assets from punitive tax charges and to retain wealth in a politically and economically stable environment.