- November 25
- Kelvin Birk
- Estate Planning
Sometimes giving assets outright to a beneficiary – such a child, a grandchild or a special needs loved one – is not the ideal method of distributing assets in an estate plan. In such a scenario, a discretionary trust can be a good estate planning tool. Below is some basic information on discretionary trusts and how they may be beneficial to your particular family’s needs. At Birk Law Firm, we draft all types of trusts, including Discretionary Trusts, depending on each client’s particular situation.
Discretionary Trusts Explained
A discretionary trust is a type of trust that is set up for the benefit of one or more beneficiaries. A In this particular type of trust, however, the trustee is given full discretionary authority to decide when and what funds – such as principal or income – are given to which beneficiaries. In fact, the beneficiaries of a discretionary trust have no rights to its funds and these funds may not considered part of the beneficiaries’ estates, depending on the specifics of the trust. The only way the funds become subject to a creditor is once the funds are distributed to the beneficiary. So long as they stay in the trust and the trustee is not required to distribute them to the beneficiary, they will remain safe. There are requirements regarding who can serve as the trustee of a Discretionary Trust, so your estate planning attorney at Birk Law Firm will need to explain the requirements and how they apply to your specific situation.
Within a discretionary trust, you can provide specific guidance to the appointed trustee regarding when distributions may be made. You can choose distributions to be used toward particular uses. This can include health, education, maintenance and support (HEMS). Similarly a trustee can be directed to distribute funds upon a beneficiary’s completion of certain milestones – such as college graduation or completion of rehabilitation.
The Purpose of Discretionary Trusts
A discretionary trust can benefit several types of individuals. Aside from minors and those with special needs, others who may benefit from this type of trust includes those: with creditor issues as a result of debt; with drug or alcohol abuse problems; who need or may need governmental assistance in the future; who could be facing or are going through a divorce. Simply put, discretionary trusts are a good estate planning tool for those beneficiaries who may need extra assistance managing large sums of money.
Stand-Alone or Included in My Revocable Trust?
A discretionary trust can be a stand-alone trust, but usually it is created from within a different trust. Often, a discretionary trust is created within a revocable trust and the discretionary trust is for the benefit of all or certain beneficiaries after the death of the Trustmaker of the revocable trust. Trusts are very flexible estate planning tools, and different types of trusts can be created within one original trust document.
Estate Planning Advice
If you or someone you know has questions about discretionary trusts – or any other estate planning issue – contact Birk Law Firm to learn about your options.