22/05/2026
Are Discretionary Trusts Still a Good Idea?
There’s been a lot of news lately about the government’s proposed changes to the taxation of discretionary trusts. The changes are significant and many people are reconsidering the merits of using trusts once the new minimum tax rate is applied.
Regardless of the changes, discretionary trusts will still have a place in estate planning. The primary purpose of most discretionary trusts is protective. That is, to help keep assets in the trust safe if a person is made bankrupt or if they divorce. Discretionary trusts can also be used to provide for vulnerable beneficiaries in a flexible and long-lasting way.
It’s important to remember that discretionary trusts have always been taxed, and that while the new minimum tax rate may result in a less favourable outcome for some distributions, others will be unaffected.
There will also be some exemptions from the new rules. While we will need to see what appears in the final legislation before properly understanding how those exemptions will apply, we will be following closely any information about the rules around vulnerable beneficiaries and whether exemptions will be granted to discretionary testamentary trusts (discretionary trusts created in wills).
Even though there is uncertainty around the new rules, discretionary trusts are still useful structures and will be worth including in an estate plan in many circumstances. Discretionary testamentary trusts (created in wills) can often be made optional, allowing your beneficiaries to obtain up to date tax advice before deciding whether to use the structure.
If you have questions about discretionary trusts or how the proposed changes may affect your estate plan, please contact us for an appointment.
