The Supreme Court of India recently held that in a discretionary trust where the trustee has retained the income and not disbursed it amongst the beneficiaries, the value of
assets cannot be assessed on the estate of the deceased settlor.
“Merely because the Settlor and after his death, his son did not exercise their power to appoint the discretion exercisers, the character of the subject trusts does not get altered”, the Court said and declared the two U.K. trusts as ‘discretionary trust’ for the subject assessment years.
The Court explained that a discretionary trust is one which gives a beneficiary no right to any part of the income of the trust property, but vests in the trustees a discretionary power to pay him, or apply for his benefit, such part of the income as they think fit. The trustees must exercise their discretion as and when the income becomes available, but if they fail to distribute in due time, the power is not extinguished so that they can distribute later. They have no power to bind themselves for the future. The beneficiary thus has no more than a hope that the discretion will be exercised in his favor.
