A Guide to Leading Member Discretionary Trusts

A Leading Member Discretionary Trust (LMDT) is a unique and tailored estate planning tool designed for families who wish to maintain control and leadership over their wealth across generations. It makes succession planning easy to implement and gives the leading member the ability to supervise the administration and allocation of trust assets. 

What is LMDT? 

It is a type of discretionary trust that places a specific individual or family member (the “leading member”) in charge of key decisions regarding the trust. This trust stands out because it places a strong emphasis on the leadership role of the family head, who has the power to designate a successor in the event of their death or incapacity and to direct the trust’s administration throughout their lifetime. The LMDT is organised to preserve continuity and control over the family’s wealth, making it a vital instrument in estate planning. 

The Advantages of Having LMDT in Estate Planning 

• The LMDT offers a reliable and legally sound process for transferring leadership within the trust, ensuring that the family’s wishes regarding succession are followed precisely. This eliminates the possibility of disagreements or conflicts among family members over the distribution of assets. 

• The LMDT enables a family leader to retain control over the trust’s assets and decision-making, ensuring that the family’s wealth is protected and passed on to future generations in a responsible manner. 

• It is a powerful asset protection, shielding family wealth from external threats like creditors and legal disputes, ensuring a secure financial legacy. 

• The LMDT, like other discretionary trusts, provides flexibility in distributing income and capital to beneficiaries. The leading member can make decisions based on the family’s needs and the changing financial situations of beneficiaries. 

• LMDT can provide tax benefits through income splitting and other strategies, ensuring that wealth is managed in a tax-efficient manner over generations. 

Parties to LMDT 

• Leading Member: The LMDT is controlled by the leading member, who has the power to make crucial decisions, appoint their successor, and manage asset distribution. 

• Trustee: The trustee manages the trust’s assets and ensures compliance with legal regulations. Often, the leading member also serves as the trustee while they are alive. 

• Beneficiaries: The beneficiaries are the individuals who benefit from the trust’s assets. Unlike traditional trusts, beneficiaries do not have a guaranteed right to receive income or capital from the trust. Distributions are decided by the leading member. 

• Appointor: The appointor has the power to remove and appoint trustees. In an LMDT, the leading member typically holds this role until they pass it to their successor. 

How it Works? 

An LMDT operates similarly to a standard discretionary trust but with a crucial difference: the emphasis on leadership succession. The Leading Member is designated to oversee the trust, determining the allocation of assets and income among the recipients. The trust ensures a seamless transfer of power by offering a procedure for the appointment of a successor leading member in the event of their demise or incapacity. 

• The trust is set up with a clear deed outlining the role of the leading member and their powers. The deed specifies how succession will be handled. 

• The leading member makes discretionary decisions about the distribution of income and capital from the trust, balancing the needs of the beneficiaries with the long-term protection of assets. 

• Upon the death or incapacity of the leading member, a successor is appointed according to the terms of the trust deed, ensuring continuity and stability in leadership. 

In conclusion, an LMDT is a valuable tool for families seeking to protect and manage their wealth across generations. By establishing clear leadership succession and flexible asset distribution, it safeguards family wealth while ensuring the needs of beneficiaries are met. For families committed to estate planning and legacy preservation, an LMDT is a strategic choice.