What are the advantages of a discretionary trust?
There Is a lot to consider when you’re doing your estate planning, and you may be thinking about using a trust. You know that a trust is a way to set money aside for one of your heirs, but it doesn’t require you to directly give them that money the same way that you would if you just left it to them in your will.
There are numerous different types of trusts that you can use, but you may have been considering a discretionary trust. What are some of the advantages of creating this type of trust?
You choose the trustee
The first benefit is that you simply get to choose the trustee, meaning you get to be sure that you have full faith in this person to carry out your wishes. You may not have that level of faith in your heir, and you can’t change that, but you can still pick a trustee who is officially in charge of the funds.
You can protect an heir from themselves
In this context, consider what you would do if you had an heir who struggled with addiction or spending issues. You may feel that they were going to waste the entire inheritance, and you want to protect them from themselves. A discretionary trust can do this because the trustee has to agree that the reason to take money from the fund is a valid one. If that trustee has better spending habits than your heir, having them in charge makes a world of difference.
The trustee can adjust the use
A discretionary trust specifically is one that allows the trustee to make all the decisions. Other trusts require you to decide how the money can be used and authorize it in advance. But a discretionary trust can be adjusted as necessary, so it’s much more flexible if the future takes a turn you didn’t expect.
For instance, your heir would have to use the money for college if it was in an educational trust, but a discretionary trust would also allow them to use it for other things if they decided not to attend college.
Getting it set up
This is just one example of one type of trust, so you can imagine how useful these tools can be in almost any situation. Be sure you know the legal steps necessary to get it all set up.