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Gainesville, FL Estate Planning, Will & Trust Law Blog

Friday, July 26, 2019

Recap: Discretionary Trusts

Recap: Discretionary Trusts


If asked “where would you like your assets to go after you pass away” the reply likely made would be, “to my spouse and then my children.” Simple as that, right? Wrong. It is not only important to think about the “where” or “who,” but also the “how,” that is, how will your assets be left to your beneficiaries? The “how” in estate planning can take you on many different avenues and which path you decide will be determined by multiple elements including your goals, your family circumstances, and your assets. If a goal of yours is to try and protect the assets you leave to your beneficiaries from creditors, then you are contemplating asset protection. So, while you may think that leaving your hard-earned assets outright to your children, grandchildren, or other beneficiaries after you die is the easiest and most desired form of distribution, it is also the “how” that will make their inheritance easy prey for creditors, predators, and divorcing spouses.  In this blog, we will discuss a type of trust that provides asset protection for you beneficiaries, a discretionary trust.


What is a Discretionary Trust?

A discretionary trust is established to protect trust assets for the benefit of the trust’s beneficiaries. This can mean protection from the beneficiary’s poor money-management skills, judgment creditors, or divorcing spouse. 


Under the terms of a typical discretionary trust, the trustee is given the discretion regarding how much can be distributed to or for the benefit of a beneficiary and when the distributions can be made. For example, you can provide that distributions to a beneficiary are at the complete and absolute discretion of the trustee. That means a beneficiary has no right to the income or the principal of a trust. Because the beneficiary has no right to the income or the principal, neither does a creditor of the beneficiary.  


Compare a purely discretionary trust to a support trust. Common language in a support trust usually directs a trustee to distribute all of the income to a beneficiary along with the ability to distribute principal for the health, education, maintenance, or support of the beneficiary. The trust may go on to say that at stated ages the beneficiary is entitled to principal distributions from the trust. Notice that the beneficiary in this example has an unfettered right to trust income and to principal distributions upon reaching a stated age. If that beneficiary has creditors lurking about, those creditors may be able to attach to that beneficiary’s right to receive trust distributions. In a purely discretionary trust, a beneficiary has no right to demand income or principal of the trust, and so it follows that neither does a creditor of the beneficiary.


What Should You Do?

If you are concerned that your children, grandchildren, or other beneficiaries will not have the skills required to manage and invest their inheritance or will lose their inheritance in a lawsuit or divorce, then give us a call to discuss how to incorporate discretionary trusts into your estate plan.

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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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