A trust is a legal device created to deal with the management of the property on behalf of another person. In Ireland, Discretionary Trusts are most commonly used as part of estate planning due to the flexibility they provide, in particular for parents of children with disabilities or special needs who may not have the capacity to hold or manage the assets themselves. A properly drafted Discretionary Trust can provide peace of mind to a parent, safe in the knowledge that their child will be provided for when they pass away and that the trust will offer the best opportunity to ensure their child’s quality of life into the future.
Unlike other types of trust, Discretionary Trusts give wide discretion to the Trustees as to how the trust is used. This allows the Trustees to, over time, exercise their judgment based on the changing circumstances and requirements of the beneficiary (the person for whom the Trust is created) to decide how funds should be used to provide the best care and support for the beneficiary. Hence the term “Discretionary”.
Sometimes the Settlor (person making the trust) will provide the Trustees with a ‘Letter of Wishes’ advising how they wish for the fund to be managed and their preferences with regards to care and medical treatment of the beneficiary in the future. Such letters are not legally binding.
Presently, one of the major benefits of a Discretionary Trust for a child with special needs is that the child’s entitlement to State supports such as social welfare, medical card, and disability benefits will not be effected. These financial supports are means tested and since the child has no legal ownership of the trust assets, these will not be taken into account in determining eligibility to receive State supports.
A Discretionary Trust set up for the benefit of a child with special needs may also be eligible for exemption from Discretionary Trust Tax and Capital Acquisitions Tax.