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Fixed Interest Trust or Discretionary Trust?

14th May 2021

The times we live in give everyone good reason to re-evaluate their priorities. However there are so many questions that need answering.

  • What will the next generation have to contend with and how can they be best helped, supported and guided?
  • What contingencies need to be prepared for?
  • Who can be trusted to look after assets professionally and be able to adapt to the circumstances, to take care of clients and their families when they may not be in a position to do so?
  • How can the next generation be taught or helped to manage their inherited wealth in line with their families’ wishes?

In these uncertain and unprecedented times, flexibility is the key. Whilst the fixed interest trust may have been suitable, or may continue to be suitable for our clients’ needs, the discretionary trust can offer the flexibility to adapt to changing circumstances. It can allow the trustee to manage assets in line with clients’ wishes whilst they may be unable to do so, whether due to incapacity or illness. The structure is more likely to continue into the next generation of their family once they pass rather than making a single distribution at a defined age that the trustee has no discretion over.

There are significant benefits of a Discretionary Trust versus a Fixed Interest Trust detailed below.

A DISCRETIONARY TRUST:

  • Increases the type of assets which can be held in trust. Companies, properties, life insurance policies and other valuable assets which widens the scope of possibilities for all
  • Increases the class of beneficiaries
  • Has more flexible distribution solutions i.e. distributions can be staged over a period of time
  • Allows the client to provide the trustees with guidance regarding his/her wishes regarding distributions to beneficiaries in a Letter of Wishes to the Trustee. This makes it easier for the client to make changes to guidance on the distributions to Beneficiaries
  • Enables assets to be retained in trust following the client’s passing and will then be discretionary managed by the trustee. The trustee will typically liaise with the Merrill Lynch Financial Adviser and the beneficiaries regarding the best discretionary managed solution

DISCRETIONARY TRUST WITH PROTECTORS:

A Discretionary Trust with protectors has the additional benefit of the client appointing protectors to manage the trust assets after their passing i.e. they can appoint one of multiple children as protector. They would then be able to continue managing the investment of the trust assets. This option could also be used as a learning tool if the client would like the next generation of their family to learn how to manage.

The Isle of Man trust team at JTC has many years of experience in managing trusts, both during and after a client’s lifetime. Our trust team also has vast knowledge of Merrill Lynch and the Latin American market. We work well together to provide an all-round service to our clients. These advantages are possible with no formal revocation of the original trust structure, just an amending deed and bespoke letter of wishes are all that is required.

Contact your dedicated trust officer in the Isle of Man office if you would like to explore this option further.

Please note that JTC does not provide legal and tax advice and should a client wish to amend their existing trust, they should seek such advice before deciding how to proceed.

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