What Is a Discretionary Trust?
A discretionary trust is one in which the trustees have discretion over how trust income or capital is used within the powers and for the beneficiaries set out in the trust.
A discretionary trust is one in which the trustees have discretion over how trust income or capital is used within the powers and for the beneficiaries set out in the trust.
That is different from an arrangement where a beneficiary has an immediate fixed entitlement to a particular asset or amount.
The word “discretionary” can sound as though trustees can do whatever they want. They cannot. Their discretion exists within the trust document and their legal duties.
What does trustee discretion mean in practice?
The trust document identifies the beneficiaries or class of people who may benefit and sets the trustees’ powers.
Depending on the terms, trustees may have decisions to make about which beneficiaries receive something, when they receive it and how much is applied.
A potential beneficiary therefore may not own a fixed share simply because they are named within the group who can benefit.
Why might families hear about discretionary trusts?
They can arise in estate and family planning where flexibility is considered useful.
For example, circumstances may change over time, there may be several possible beneficiaries, or somebody may want trustees to respond to beneficiaries’ different future needs.
They are also sometimes discussed where a beneficiary is disabled or vulnerable.
Those circumstances do not mean a discretionary trust is automatically the correct solution.
The trustees’ job is a serious one
Trustees control trust assets and must exercise their powers properly.
They need to understand the trust deed, consider relevant beneficiaries and circumstances, avoid using powers for improper purposes and deal with tax and administration where required.
Choosing trustees is therefore not simply choosing relatives who are “good with money”.
A trust may operate for many years, during which relationships, health, finances and family circumstances can change.
What is a letter of wishes?
A person creating a discretionary trust may also leave trustees a letter explaining their wishes and the factors they hope trustees will consider.
A letter of wishes can provide valuable context, but it is generally not the same as a binding instruction in the trust deed.
That distinction is important: flexibility for trustees would be undermined if every future decision had already been legally dictated.
What about benefits and vulnerable beneficiaries?
People sometimes hear that a discretionary trust will “protect someone’s benefits”.
That is too simplistic.
Means-tested benefit rules, the beneficiary’s rights, distributions from a trust and the precise drafting can all matter. Separately, HMRC has specific rules for qualifying trusts for vulnerable beneficiaries, including possible special tax treatment where statutory conditions are met.
Do not assume that every discretionary trust for a disabled person is automatically a “vulnerable beneficiary trust” for tax purposes.
What about tax?
Discretionary trusts can have their own Income Tax, Capital Gains Tax and Inheritance Tax consequences.
The rates, allowances and reporting requirements can change, and tax treatment depends on the precise arrangement.
Tax should therefore be part of the professional advice before a trust is created, not an afterthought once assets have been transferred.
The question to take to a solicitor
Rather than asking “Can you set up a discretionary trust?”, explain why you are considering one.
Who are you trying to provide for? What concerns you about an outright inheritance? How much flexibility do you want trustees to have? Who could realistically act as trustee? What benefits, tax, care or family circumstances may be relevant?
That gives the adviser the opportunity to explain whether this type of trust, another arrangement or no trust at all best fits the circumstances.
Last reviewed
5 September 2026
Important legal informationThis guide provides general information only and does not constitute legal advice. It is not intended to recommend any particular legal arrangement, course of action or solution. Wills, inheritance, trusts, powers of attorney, mental capacity and related matters can have significant legal and financial consequences, and the appropriate approach will depend on individual circumstances. Professionally qualified legal advice should be sought before making, changing or acting upon important legal arrangements or decisions.