Should I Have a Discretionary Trust in My Estate Plan?
A discretionary trust is a legal arrangement allowing a trustee to manage assets on behalf of beneficiaries with significant flexibility in distribution decisions.
Key Characteristics
A discretionary trust operates as an irrevocable trust, meaning asset transfers are permanent. The trustee holds technical ownership of the assets rather than the beneficiaries themselves, which provides an important distinction in how these arrangements function.
The grantor (also called trustmaker, settlor, or trustor) can provide guidance about distribution timing and amounts, but the trustee ultimately decides when and how much principal and interest gets distributed to each beneficiary.
Primary Benefits
Asset Protection: Because the trustee technically owns the assets, they receive protection from creditor lawsuits against beneficiaries.
Beneficiary Safeguards: This structure prevents mismanagement by beneficiaries who may have poor financial habits. It also provides protection in situations involving divorce or other personal challenges.
Tax Planning: A properly structured discretionary trust can offer estate tax planning advantages worth discussing with your attorney.
Wealth Preservation: The arrangement helps preserve family wealth across generations.
Establishing a Discretionary Trust
When creating a discretionary trust, you must determine:
- Trustee and successor trustee appointments
- Which assets transfer into the trust
- Beneficiary designations
- Distribution circumstances and conditions
Important Consideration
Since discretionary trusts are irrevocable, confirming this arrangement aligns with your estate planning goals before establishment is essential.
If you have questions about whether a discretionary trust belongs in your estate plan, contact The Stegall Law Firm to schedule a consultation. We can help you evaluate your options and build a plan that protects your family and your legacy.
