Discretionary Powers

Discretionary powers are included in a will or trust deed and allow the trustees to make certain types of decisions. They are not legally binding, and do not impose obligations on the trustees. Instead, they are permissive, giving the trustees options and flexibility that may be of help as they make their decisions on behalf of the beneficiaries.

Trustees 

Trustees have powers to advance some or all of the trust fund to the named beneficiaries (or for their benefit). The powers may derive from statute or from the will or trust deed. If the beneficiary has a right to receive capital from the fund, the trustees can choose to exercise their powers of advancement in favour of the beneficiary. The trustees can’t be compelled to exercise their powers of advancement; these are discretionary powers the trustees can use, if they decide to.

Children are not able to give a legally valid receipt, so if the trustees wish to advance funds for the benefit of a child, they are not able to pay funds directly to the minor themselves. Instead, the trustees may be able to pay the funds to the parent or guardian of that beneficiary, who must look after the funds on behalf of the child and apply them for the child’s benefit. The authority for the trustees to do this may come from statute or from the trust deed itself. Considering whether to make a payment to a child’s parent or guardian is part of the trustees’ duty to ensure they are acting in the beneficiary’s interests, and they must consider whether making such an advancement will be an appropriate discharge of their duties.

In a discretionary trust, powers of advancement aren’t applicable as the beneficiaries don’t have a legal right to the capital or income of the trust. It is up to the trustees to decide who benefits from the trust. Once they have decided, distributions are made by the trustees’ power of appointment. The trustees choose to exercise their discretion in favour of a beneficiary and appoint assets from the trust fund to, or for, that person’s benefit.