There are many different ways to create a trust to hold assets as part of an estate plan. One common option is to pick a specific goal and authorize the trust to fund that goal – such as giving a beneficiary the capital needed to start a business, buy a home or pay college tuition. The trust has a distinct purpose and the trustee ensures that the money is used for that purpose.
Another option, though, is to use a discretionary trust. Rather than picking a specific goal, you pick a trustee who gets to use their discretion to make decisions regarding how the beneficiary can use the money. This can be helpful if you are not convinced that the beneficiary would make wise choices with the funds on their own, for example. Maybe they have problematic spending habits, so you want someone else to be in control of how they use their inheritance.
The flexibility of a discretionary trust
One of the key benefits of doing things this way is that a discretionary trust is more flexible. The trustee can consider all relevant information at the time and make the right decision, rather than being bound by restrictions or limitations created years earlier.
For example, say that you use an educational trust for college tuition. But then the beneficiary has a terrific business idea before they graduate from college. If the trust says that the money can only be used for college tuition, the trustee cannot violate those regulations. But if they’re allowed to use their discretion, they may decide that you would have been fine with the money being used to start the business, and they can authorize those payments.
Setting up an estate plan can be very complicated. Make sure you know exactly what legal options you have.
