Many people use trusts to hold some or all of their estate. A trust can keep those assets from having to go through the time-consuming process of probate. In some cases, they can protect them from creditors, divorcing spouses, Medicaid and the IRS.
One type of trust is a discretionary trust. What is special about these?
You allow the trustee to use their discretion
You must name a trustee when you set up any kind of trust. Often the only role the trustee will perform is to follow your wishes concerning the distribution of the trust. For example, you put a lump sum in the trust to pay the college fees for your grandchildren. The trustee’s job is simply to make those college payments at the appropriate time.
Yet sometimes you might want to keep your options open. Maybe you appreciate that not everyone wants to go to college and some of your grandchildren might benefit more from an influx of cash to start a business. Or perhaps you just want to make sure that money is not cordoned off and unavailable when an emergency happens such as one of your grandkids falling seriously ill.
With a discretionary trust, you allow the trustee to decide how and when to release the money. You can set some general aims – for example, helping your grandkids set themselves up in a career or just making sure your grandkids are given a helping hand where needed. It allows more flexibility than the average trust.
Choosing someone who understands what you would want is crucial. You should also name some backups in case they pass before the trust is exhausted.
An extra layer of security
You can also add an extra layer of security, by naming people as appointers. Their job is to ensure the trustee handles the trust according to your wishes and respects their fiduciary duty.
By learning more about the various estate planning options available you can decide if a discretionary trust is right for you and your family.