Discretionary Trust

[Lynx]

Any downside to setting up discretionary trust within a marriage with wife (intended beneficiary) as sole additional trustee?

[ReformedCharacter]

Any downside to setting up discretionary trust within a marriage with wife (intended beneficiary) as sole additional trustee?

It depends on your circumstances but look closely at the taxation of such trusts, they can be expensive.

RC

[Chrysalis]

For what purpose?

[Kantwebefriends]

Any downside to setting up discretionary trust within a marriage with wife (intended beneficiary) as sole additional trustee?

Precision required. Wife as beneficiary or widow as beneficiary?

Is wife the only named beneficiary?

If so, are Trustees to have discretion to appoint other beneficiaries?

[Lynx]

This is to avoid IHT on life insurance payout, with present intention to have payout go to wife - wife is intended beneficiary, but want to retain future flexibility e.g. in case of children. I understand there is no requirement to name wife as beneficiary since wife is a default beneficiary in discretionary trust. But with wife named as trustee, I believe on death wife can withdraw payout for herself (or whomever she likes) as beneficiary. Thinking is to set up very simple discretionary trust then only naming wife as trustee - L&G form indicates no requirement to list default beneficiaries (e.g. wife) as beneficiary and presumably wife as trustee can withdraw payout for herself anyway.

Am I missing anything?

[pochisoldi]

This is to avoid IHT on life insurance payout, with present intention to have payout go to wife - wife is intended beneficiary, but want to retain future flexibility e.g. in case of children. I understand there is no requirement to name wife as beneficiary since wife is a default beneficiary in discretionary trust. But with wife named as trustee, I believe on death wife can withdraw payout for herself (or whomever she likes) as beneficiary. Thinking is to set up very simple discretionary trust then only naming wife as trustee - L&G form indicates no requirement to list default beneficiaries (e.g. wife) as beneficiary and presumably wife as trustee can withdraw payout for herself anyway.

Am I missing anything?

Make life simple - name your wife and children on the expression of wish form you send to L&G, with appropriate percentages.
In a letter with the will set out what you have done, and what you expect from your children - i.e. that they will continue to look after their Mum/step-Mum when you are gone.
If you don't trust your children to do this, then let all the money go to your wife, and let the children take the IHT hit.

Note that if the percentage split is wrong at death (i.e. the percentage to your wife that you decided on in 2018 becomes too small in 2038), then L&G can use their discretion to increase that percentage.


PochiSoldi

[BarrenFluffit]

Have a look at the Tax Cafe book on inheritance tax; it covers things in much better detail.

Trusts can easily be quite complicated with intuitive decisions having unforseen tax consequences.

[Chrysalis]

I’m a bit confused (easily done). My understanding (not a lawyer or tax expert) is that life insurance is generally ‘written in trust’ and that means the payout falls outside of the estate.
I think what you’re talking about is allowing your wife to pass on some or all of the proceeds to children, but leaving that to her discretion?
I agree with posters above that this is possibly unnecessarily complicated. I am fairly sure that it is possible to change the beneficiary at a later date, so you could add or replace with your children in at a later date if it became clear your wife wouldn’t need the proceeds.
What are the ages of all concerned?
Might be worth talking with the insurer about your objectives and see if they can advise.