What are the advantages of a discretionary trust?

On Behalf of | Jun 30, 2023 | Estate Planning |

Many people who create trusts have a very specific focus. They want to put their assets in the trust for an heir who has special needs, for example, so that they don’t disqualify that person for government benefits. Maybe they want to put money in a trust that can be used to pay for college tuition.

But there are other situations in which someone may simply create a discretionary trust. With this type of trust, the trustee gets to make the decisions about how they think the money should be used. There aren’t any constraints, and they’re allowed to use their own discretion and make these choices on behalf of the beneficiary. What are the advantages of setting things up this way?

The trust becomes more flexible

The big advantage is simply that the trust can do a lot more. When you have someone who is in charge of it, rather than a set of instructions, they can adapt to current situations and be flexible. This may give them a greater ability to use the money in a way that you would have supported.

An example of this could be if you put the money in an educational trust but then your heir started a business right after high school and didn’t go to college. Does this mean they don’t get their inheritance? You may not have predicted that they would start a business in this fashion, but you would certainly allow them to use their inheritance to help fund that company. With a discretionary trust, your trustee can make sure that that still happens.

This also just helps to show you how many different options you have with trusts. Be sure you know what steps to take when setting one up.