When you use a discretionary trust, you are giving the trustee a lot of power. They are now in charge of how the funds from the trust will be distributed, and they can use their own discretion when making these decisions.
This trustee should not receive any of the assets from the trust, of course. They are acting on behalf of the beneficiary. But it is the trustee, rather than the beneficiary, who gets to decide when those distributions should be made.
Avoiding a restrictive trust
One of the benefits of setting up a discretionary trust is that it will not be too restrictive for the beneficiary. People are sometimes tempted to pick a very specific use, such as saying that the money in the trust can be used to pay for someone’s college education.
But what if that person decides to start a business as soon as they graduate from high school? What if they are dealing with a disability that makes it difficult or impossible for them to pursue a college education? What if they are providing care for a sick family member, or if they decide to start a family?
With a discretionary trust, the trustee can authorize payments for a variety of uses, ensuring that the beneficiary gets their inheritance when they need it.
Making wise decisions
But the second benefit of a discretionary trust is that you get to choose a trustee that you know will make wise and prudent decisions. These trusts are often used with relatively young beneficiaries. It is a way of protecting them from spending the money frivolously by putting the trustee in charge.
These are just a few of the ways that a trust can be useful in an estate plan. If you are interested in setting one up, make sure you know exactly what legal steps to take.