In a discretionary trust, money is placed in a trust account for the benefit of your heirs. Unlike typical trusts, however, with a discretionary trust the trustee has full discretion to decide when the beneficiaries are given the money, and how much they are given at any particular time.
Typically, the creator of the trust will place limits on the amount and timing of the trust distributions. In creating a discretionary trust, you can generally make the terms as broad or narrow as you want. Distributions can be limited to specific purposes, or set to occur at predetermined intervals. The idea is that you limit the beneficiaries’ access to the funds in the hope that the funds are ultimately used for the purposes for which they were intended.
The Benefits of a Discretionary Trust
By placing discretion over the distribution of the trust’s capital in the hands of the trustee, a discretionary trust protects against those assets being squandered by heirs that are lacking in money-management skills or personal judgment, or tend to have extravagant spending habits.
Also, because the inheritance resides in the trust rather than in the direct possession of your heirs, the trust creates a barrier against third parties who may try to get their hands on the money. This includes lawsuits or other legal judgments, creditors, and divorcing spouses. If you’re afraid your heir is vulnerable to having his or her inheritance preyed upon by outsiders, a discretionary trust is a great way to add a layer of protection to the money you’re passing on.
Another benefit of discretionary trusts for your children is that you can design them in a way that minimizes estate taxes when the assets later pass from your children to their children. You can also decide who is to get the remainder of a discretionary beneficiary’s trust if the beneficiary passes away. Many people take advantage of that aspect to ensure that trust assets remain the family.
If you have any reason to be concerned about giving your heir an outright gift, a discretionary trust may be the right answer. An experienced estate planning attorney can help you decide the right way to distribute your estate to ensure that your loved ones are protected.
Contact a California Estate Planning Attorney Today
The Ledbetter Law Firm, APC is dedicated to helping individuals and families plan for their futures through all aspects of estate planning. Contact The Ledbetter Law Firm, APC to discuss whether a discretionary trust is right for your particular situation.