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3 reasons to use a discretionary trust

On Behalf of | May 20, 2022 | Estate Planning |

There are many different types of trusts that you can use and many different ways to set them up. It’s all about identifying your own goals and then determining what will work best in that case.

One type of trust is known as a discretionary trust. Unlike something more specific, such as an educational trust, the discretionary trust simply means that the trustee is the one who gets to determine how the money is used. If you set this up, you’re giving that trustee full power to make decisions that they believe you would agree with. Below are three reasons why this can be so helpful.

1. You know the trustee will make sound decisions

One of the major reasons that people do this is when they just don’t believe that the heir is going to make wise decisions on their own. Maybe that heir is only 18 years old, for instance, or maybe they have a questionable financial history. If you’re worried that the heir is going to waste the money that you give them, but you still want to leave them an inheritance, you can do it through a trust so that your heir gets the benefits without being allowed to make the decisions.

2. It provides greater flexibility

Another benefit of a discretionary trust is the flexibility that it gives the trustee in the future. People who create trusts for very specific purposes cannot guarantee that they wouldn’t want to change their mind in the future. For example, if your trust specifically said that college tuition was the only thing that could be paid out of the trust, then the trustee doesn’t have very many options. If your heir decides to skip college for a reason that you would support, such as starting a business or joining the military, then they would lose out on their inheritance. With a discretionary trust, that money can just be reallocated to something else.

3. You can discuss your decisions in advance

A final benefit of using a discretionary trust is that you get to talk to the trustee in advance. The two of you can have extensive conversations about your goals and the reason that you picked them to be part of the process. This guarantees that the trustee understands what you want and will work hard on your behalf.

If you’d like to set up a trust like this or any other type, just look into the legal steps necessary to make it happen.