When it comes to the different types of trusts, it may be daunting at first, to try to figure out each one. The discretionary trust is a trust that you set up for the benefit of the beneficiaries. This difference between this type of trust and other trusts, however, is that you give the trustee full discretion on when and what funds are allocated to the beneficiaries. The beneficiaries, on the other hand, do not have rights to the funds and the funds will not be regarded as part of their estate.
Discretionary Trust Explained
When it comes to most trusts, the beneficiaries have rights to a portion of the income. This all depends, of course, on the terms set forth. In some cases, they may receive a monthly allowance or receive all of their funds at a certain age. In this case, the beneficiaries are beneficial owners. This is not the case, however, for discretionary trusts.
Instead, the beneficiary cannot claim or demand funds at any stage in the process. The trustee has complete control over the funds. This means that the beneficiary must adhere to the rules set forth by the trustee. The trustee has full discretion over the allocation of funds.
Why Choose a Discretionary Trust
One of the biggest reasons that someone chooses a discretionary trust is to protect beneficiaries who do not have the ability to use funds wisely. It also protects those beneficiaries against creditors. If you have young children who are not an age to appropriately manage funds or if your beneficiary has poor credit or makes unwise decisions with his or her money, this is a great way to provide them with benefits and funds without them being able to mismanage it or have it taken by creditors. When you choose a trustee, make sure it is someone you trust will act in the best interest of your beneficiaries. This can be another family member or a family friend that you can trust with these types of decisions.
Trusts can be a great way to leave money for beneficiaries. For parents, there is often a question of what to leave to the children. If you have children, relatives or any beneficiaries that are not able to manage money wisely or are too young to have their own funds, then it’s important to choose someone you trust to handle those affairs.