discretionary trusts

The following are the advantages of discretionary trust:

• a. Protection of the fund: The objects of a discretionary trust do not own anything until they are actually selected and receive their share. Since the discretionary objects do not own the fund or have an equitable interest in it, it cannot be subject to any control or disposition by them or be made liable for their debts. Thus, the discretionary trust may therefore be a useful device for a settlor who wishes to protect family property against a spendthrift.
• b. Adaptability to changing circumstance: The second advantage of the discretionary trust lies is flexibility. The settlor is unlikely to be able to foresee all the changing circumstances which may in the future affect the needs of the beneficiaries. It is therefore sensible to give the trustees a discretion as to distribution of the funds in the light of those changing circumstances.

The term discretionary trust implies a situation where the trustee has some form of power or discretion. This is concerned with situations where the trustee has the power or discretion to choose who, from a range of possible beneficiaries, shall actually receive benefits under the trust.

The obligations of a trustee under a discretionary trust are as follows:

• a. The trustee of a fixed trust must carry out the terms of the trust as set out by the settlor.
• b. When he exercises the power, he must of course as in the case of all trusts and powers, confine himself to what is authorized, and not go beyond it.
• c. A trustee is bound by the duties of his office in exercising the power given to him under a discretionary trust to do so in a responsible manner according to its purpose.

The courts have the power to interfere with or overturn the trustees’ exercise of their discretion where is it is clear that the decision they have made is the result of a mistake as to the effect of that decision. Hastings-Bass (Re Hastings-Bass [1974] 2 All ER 193.