More parents using discretionary trusts to protect family assets from divorce

By Lenore Rice

New research suggests that more people are using discretionary trusts to protect gifts of money or assets to their married children in the event of a future divorce.

Discretionary trusts can essentially achieve the same results as a pre-nuptial agreement when it comes to protecting money or assets that has been gifted by one of the spouse's parents or other family members. The difference is that the person(s) making the gift can take control of the situation by using a discretionary trust, rather than having the difficult conversation with their children advising them to get a prenuptial agreement before they marry.

The research by Investec suggests that a third of parents are reluctant to provide financial assistance to a married, or soon to be married child, and 13 per cent of those surveyed said they are considering a discretionary trust instead. They have also a reported an increase in the number of clients requesting advice on protecting family assets in the event of one of their children getting a divorce. One in six parents said they prefer to make small financial gifts to their children on a more regular basis instead of a large lump sum gift.

What are discretionary trusts?

A discretionary trust, as the name would suggest, gives the trustees discretion to decide on the beneficiaries and their entitlements, as opposed to normal trusts, which are normally fixed. As such, beneficiaries don't have a specific proprietary right, but are dependent on the trustees. Normally the parents will appoint themselves as the trustees and will therefore have complete control of the trust assets. They will often choose their children or grandchildren to be the discretionary beneficiaries. If the parents decide to appoint new trustees, especially as they get older, they will often write a letter of wishes explaining why the set up the trust, and provide some guidelines on how the trustees should exercise their powers.

If you require legal advice from a solicitor in Northern Ireland specialising in trusts, including discretionary trusts, contact Wilson Nesbitt solicitors in Belfast or Bangor by clicking here.