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Should I have a Discretionary Trust in My Estate Plan?

April 6, 2022
David Parker, Esq.
How can a Discretionary Trust help me?
David Parker, White Plains and New City NY Estate Planning Attorney
David Parker, Esq.
David Parker is an attorney who specializes in Estate Planning and Elder Law and has been practicing law for 30 years. Be it Wills, Trusts, Powers of Attorney, Health Care Proxies, or Medicaid Planning, David provides comprehensive and caring counsel for seniors and their families. A large portion of David’s practice is asset protection strategies so that families do not lose their hard earned savings to nursing home care costs. He also handles probate administration for the settlement of estates.
A discretionary trust is a type of trust that can be established on behalf of one or more beneficiaries.

The trustee who oversees a discretionary trust can use their discretion in determining when and how trust assets should be distributed to beneficiaries. There are several reasons why you might consider establishing a discretionary trust. The Facts’ recent article entitled “Your Estate Plan Could Improve with This Type of Trust” explains that a trust is a legal arrangement in which assets are managed by a trustee on behalf of one or more beneficiaries. In a typical trust arrangement, assets are managed according to the directions and wishes of the grantor (also known as the trustmaker, settlor, or trustor).

However, with a discretionary trust, the trust lets the trustee have full discretion when overseeing the distribution of trust assets to beneficiaries. This is a type of irrevocable trust, which means that the transfer of assets is permanent. The grantor can provide direction about when trust assets should be distributed and how much each trust beneficiary should receive. However, it is up to the trustee to decide what choices are made with regard to distributions of principal and interest from trust assets.

A discretionary trust can help to prevent mismanagement of assets on the part of beneficiaries. It can also offer protection against creditor lawsuits. The assets in a discretionary trust are protected because the trustee technically owns those assets, not the trust beneficiaries.

A discretionary trust can also be used in other situations where you may have concerns over how trust assets will be used, such as in the event a beneficiary divorces.

An experienced estate planning attorney can create a discretionary trust. When establishing the trust, you'll need to decide:

  • Who to name as trustee and successor trustees
  • Which assets will be transferred to the trust
  • Who to name as trust beneficiaries; and
  • Under what situations you'd like assets to be distributed to beneficiaries.

It is an irrevocable trust. As a result, the transfer of assets is permanent. Therefore, be sure beforehand that this type of trust is appropriate for your estate planning needs.

Discretionary trusts can protect your beneficiaries from their own poor money habits, while preserving a legacy of wealth for future generations.

A properly structured discretionary trust can also have some estate tax planning benefits. Ask your attorney to explain this to you when you meet.

Reference: The Facts (March 7, 2022) “Your Estate Plan Could Improve with This Type of Trust”

Suggested Key Terms: Estate Planning Irrevocable Trust, Probate Attorney, Discretionary Trust

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