discretionary trust
Noun: A discretionary trust is a legal arrangement where a person (the settlor) transfers assets to a trustee to manage for the benefit of one or more beneficiaries. The defining feature is that the trustee has complete discretion over how much of the trust's income or capital, if any, to distribute to the beneficiaries and when to make such distributions. The beneficiaries have no automatic right to receive payments.
A discretionary trust is used in estate planning to provide flexibility. The trustee assesses the needs and circumstances of the beneficiaries before deciding on distributions. - The settlor established a discretionary trust to provide for his grandchildren's future education and healthcare needs. - As the trustee of a discretionary trust, she must decide annually which family members will receive support and how much.
- The assets were placed in a discretionary trust, giving the trustee the power to support various charities as he saw fit.
- Because it was a discretionary trust, the children could not demand payments from the trustee; they had to wait for the trustee's decision.
- His will created a discretionary trust for his spouse, allowing the trustee to provide for her care without granting her direct control of the capital.
- Protective Function: A discretionary trust can protect assets from a beneficiary's creditors or poor financial management, as the assets are not legally owned by the beneficiary until distributed.
- Tax Planning: In some jurisdictions, the flexible distributions of a discretionary trust can be used for tax efficiency, as income can be allocated to beneficiaries in lower tax brackets.
- Fixed Trust (n): A trust where the beneficiaries' entitlements to income or capital are fixed and certain, unlike a discretionary trust.
- Trustee (n): The person or institution that holds and manages the assets in a trust, including a discretionary trust.
- Settlor (n): The person who creates and funds the trust.
- Beneficiary (n): A person who may benefit from a trust, such as a discretionary trust.
- Flexible Trust: Emphasizes the adaptable nature of the distributions.
- Sprinkle Trust: A specific type of discretionary trust where the trustee can "sprinkle" or distribute income among a group of beneficiaries at their discretion.
- Exercise of discretion: The act of the trustee making a decision within a discretionary trust.
- The trustee's exercise of discretion was guided by the settlor's letter of wishes.
- Objects of the trust: Refers to the class of potential beneficiaries of a discretionary trust.
- The objects of the discretionary trust included all the settlor's living descendants.
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a trust that gives the trustee discretion to pay the beneficiary as much of the trust income as the trustee believes appropriate
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