Keeping it all in the family

Emily Pritchard, current as of: 4 August 2022.

Why a lineal descendants discretionary trust is important

Insolvency, bankruptcy, family breakdown and death are just some of the common concerns that arise in the context of asset protection, estate planning and investment or business structuring. The unique circumstances of 2020/2021 appear to have compounded many of these concerns, leading to increased enquiries regarding the Acis Lineal Descendants Discretionary Trust.

The Acis Lineal Descendants Discretionary Trust (LDDT) is, as its name suggests, a type of discretionary trust. The trustee of the trust, in both standard discretionary trusts and LDDTs, has a discretion to determine which of the beneficiaries are to receive distributions of income and/or capital from the trust and in what amounts. What differs between a standard discretionary trust and the LDDT, however, is who falls within the definition of Beneficiary in each case.

The Beneficiaries

A standard discretionary trust usually has a very wide range of potential beneficiaries, including a broad group of natural persons, companies and other trusts. These generally extend to spouses, aunts, uncles, cousins, nieces, nephews and stepchildren, as well as spouses of all of these people. Find more information about Beneficiaries in a Discretionary Trust here.

Conversely, beneficiaries in the LDDT are a much more finite group and are largely restricted to the children, grandchildren and remoter issue (i.e. the lineal descendants) of the Primary Beneficiaries. Whilst the trustee still has a discretion to determine which of the beneficiaries are to receive distributions and in what amounts, the group of beneficiaries in whose favour the trustee can exercise that discretion is much more limited.

Two Acis Lineal Descendants Discretionary Trusts to Consider

Acis has two types of LDDT:

  1. Lineal Descendants Discretionary Trust – Income and Capital Protected;
    • Income and capital can be distributed to a finite group of essentially lineal family members only.
    • Additional beneficiaries can only be appointed in very limited circumstances and in a very limited way.
  2. Lineal Descendants Discretionary Trust – Capital Protected Only.
    • Income can be distributed to a broad range of potential beneficiaries – essentially the same as in a standard discretionary trust.
    • Capital can be distributed to a finite group of essentially lineal family members only.
    • Beneficiaries entitled to income can be removed and appointed in the same way they can in a standard discretionary trust.
    • The limited group of beneficiaries entitled to capital can only be added to in very limited circumstances and in a very limited way.

The following provides more detail for each of the Lineal Descendants Discretionary Trusts.

Lineal Descendants Discretionary Trust – Income and Capital Protected

In the Lineal Descendants Discretionary (Income & Capital Protected) Trust, Primary, Secondary & Tertiary Beneficiaries are entitled to received distributions of both income and capital of the Trust.

Primary Beneficiaries

The persons nominated at the time of ordering and who are listed, by name, as Primary Beneficiaries.

Secondary Beneficiaries

Lineal Descendants of the Primary Beneficiaries.

Lineal Descendants means Child or remoter issue. Child includes a natural child and adopted child but excludes a step child or foster child.

Tertiary Beneficiaries

Companies and trusts in which all of the interests are held only by, or for the benefit of, other Beneficiaries.

Changing Beneficiaries

The Trustee and/or the Appointor have the power to remove beneficiaries in this trust. The Trustee and/or the Appointor may only appoint additional beneficiaries to this trust; however, in very limited circumstances and in a very limited manner. A brother or sister of a Primary Beneficiary, or a Lineal Descendant of those brothers and sisters, may be appointed as a Secondary Beneficiary, but only where there are no remaining living Lineal Descendants of the Primary Beneficiary.

The power to amend the Trust Deed for this trust cannot be used if, as a result, any person who is not a Primary Beneficiary, a Lineal Descendent of a Primary Beneficiary, a brother or sister of a Primary Beneficiary or a Lineal Descendant of those brothers and sisters, could or will become a Beneficiary of the Trust.

 

Lineal Descendants Discretionary Trust – Capital Protected Only

In the Lineal Descendants Discretionary (Capital Protected Only) Trust:

  1. Primary, Secondary & Capital Beneficiaries are entitled to receive distributions of income of the trust; and
  2. Capital Beneficiaries only are entitled to receive distributions of capital of the trust.

Primary Beneficiaries

The persons nominated at the time of ordering and who are listed, by name, as Primary Beneficiaries.

Secondary Beneficiaries

Relatives of the Primary Beneficiaries including children, grandchildren, stepchildren, brothers and sisters, nieces and nephews, spouses and parents of the Primary Beneficiaries. This also includes the trustees of the estates of any of these relatives who may be deceased, and companies and trusts in which any other beneficiaries (and their relatives) may have interests or of which they may be directors/trustees. Charities are also included.

Capital Beneficiaries

The Primary Beneficiaries and the Lineal Descendants of the Primary Beneficiaries.

Lineal Descendants means Child or remoter issue. Child includes a natural child and adopted child, but excludes a step child or foster child.

Changing Beneficiaries

The Trustee and/or the Appointor have the power to remove and appoint Secondary Beneficiaries (those entitled to receive income).

The Trustee and/or the Appointor may only appoint additional Capital Beneficiaries (those entitled to receive capital); however, in very limited circumstances and in a very limited manner. A brother or sister of a Primary Beneficiary, or a Lineal Descendant of those brothers and sisters, may be appointed as a Capital Beneficiary, but only where there are no remaining living Lineal Descendants of the Primary Beneficiary.  Other than in that circumstance, Capital Beneficiaries cannot be changed.

The power to amend the Trust Deed cannot be used if, as a result, any person who is not a Primary Beneficiary, a Lineal Descendent of a Primary Beneficiary, a brother or sister of a Primary Beneficiary or a Lineal Descendant of those brothers and sisters, could or will become entitled to receive the capital of the Trust.

There can be numerous life circumstances which prompt people to focus on preserving their legacy for their lineal descendants. It may be an adult child’s relationship breakdown, concern about their choice of life partner, issues with blended families or simply the desire to protect the wealth you’ve built for your family. Regardless of what is prompting the focus, we’re seeing more and more interest in the Acis Lineal Descendants Discretionary Trust.

If you’re considering a new structure, the Acis Lineal Descendants Discretionary Trusts should be considered. Similarly, it may be possible to amend existing trusts to essentially make them lineal descendants trusts. Don’t hesitate to contact the Acis Legal Services Team with any enquiries.

Otherwise, here are two order forms you can complete straight away:

Lineal Descendants Discretionary Trust Order Form

Trust Amendment Order Form

Acis does not provide advice in relation to commercial law, taxation, duty, company law or any other matter. We do not purport to provide advice nor should you construe anything in any correspondence with us, or material provided by us, as advice of any kind.

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