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Friday, May 17, 2019

What does a discretionary trust mean?

What does a discretionary trust mean?


There are many reasons why leaving assets outright to a beneficiary is not the most ideal method of distributing assets. To list a few, maybe a beneficiary has a high risk job such that exposure to lawsuits is prevalent in the beneficiary’s line of work, or it may be the case that a beneficiary is a spendthrift and does not know how to manage money. Other reasons could come down to family dynamics such as a beneficiary’s unstable marriage. Whatever the scenario, it is a good idea to consider whether a discretionary trust is a good fit for your estate plan. Below is some basic information on discretionary trusts and how they may be beneficial to your particular family’s needs.


Discretionary Trusts Explained

Keep in mind this general rule of asset protection and trusts: whatever rights a beneficiary has to trust distributions are the same rights a potential creditor can have. For example, if a beneficiary is entitled to all of the income from a trust and a creditor of the beneficiary attaches that beneficiary’s trust distribution rights, then that creditor is now entitled to all of the income from the trust. 

In this particular type of trust, the trustee is given full discretionary authority to decide when and what funds (the principal or income of the trust) are given to which beneficiaries. Depending on the level of discretion granted to the trustee, the beneficiaries of a discretionary trust may have no rights to any trust distributions. Therefore the trust property is not considered a part of the beneficiaries’ assets. In a fully discretionary trust, the time at which the funds become subject to creditors is at the time distributions are made to the beneficiary. Therefore, as long as trust property remains in the trust and the trustee is not required make any distributions to the beneficiary, the trust assets will remain protected from the beneficiary’s creditors.

As noted above, the level of discretion granted to a trustee can vary. Within a discretionary trust, you can provide specific guidance to the appointed trustee regarding when distributions can be made and out of what funds. Further, the trust can include language suggesting to the trustee the criteria the trustee might consider in determining how distributions are to be made, such as for education and tuition, for large family events such as weddings or the purchase of a home, or generally for health, education, maintenance and support. A trustee can also be encouraged to distribute funds when a beneficiary has reached certain milestones such as college graduation or completion of rehabilitation.

If you or someone you know have questions about discretionary trusts or any other estate planning issue contact us to learn about your options.

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From our office in Gainesville, the estate planning firm of White & Crouch, P.A. advises and represents clients in communities throughout Alachua County, Marion County, Levy County, Putnam County, Clay County, Bradford County, Union County and Gilchrist County in North Central Florida. Call us at 352-372-1011 or contact the firm by email to arrange an initial consultation with us today.

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