Why would you use a discretionary trust?

On Behalf of | May 12, 2022 | Estate Planning |

When people set up a trust, they generally pick a focus for that trust. For instance, maybe you believe that your grandchildren should be able to go to college without taking out an incredible amount of student loans. You want to create an educational trust so that the money you leave behind can be used to pay their college tuition costs.

But a discretionary trust is a bit different. It is just a trust that holds the money so that it doesn’t go directly to your heir, and then you pick a trustee to decide how to give the money to that person. This trustee has full discretion to make decisions regarding what the money is for, when they turn it over to the heir and how it can be used. You don’t pick a focus in advance. Why would you want to use a trust like this?

It offers more flexibility

One benefit is that a discretionary trust is fairly flexible. Does your heir want to start their own business and need funding to get it off the ground? Do they want to go to college and get a degree or return to school to get an advanced degree? Did they just get married and are they interested in buying a home?

These may all be things that you would like them to use the money for, but you can’t predict what your grandchildren will be doing when they are adults. By using a discretionary trust, you ensure that the trustee is the one making the decision, but you allow them to address whatever your heir needs.

It keeps them from wasting the money

Another benefit is simply that it means your heir can’t waste the money or use it on something frivolous. If they’re still very young, you may be worried about something like that. If you’re leaving them enough money that they’d never have to work, you may also be worried that it will take away their incentive to accomplish anything. Putting the money in the trust instead of giving it to them directly means that you can alleviate these fears, but the money can still be used to help improve their life.

Setting it all up

If you’re interested in using a discretionary trust or any other type of trust as part of your estate planning, be sure you know what steps to take to set everything up.