Age Gracefully With A Plan In Place

Why would a discretionary trust be a better option?

On Behalf of | Oct 15, 2024 | Estate Planning |

There are two main ways that you can set up a trust as part of your estate plan. First of all, you can leave specific instructions that the trustee has to follow regarding when they make distributions to the beneficiary. Secondly, you can just put the trustee in charge and allow them to use their discretion to make distributions when they think it is best.

It is certainly true that both plans can work, and many people will decide on a specific focus – such as paying for the beneficiary’s college tuition or leaving them money so that they can buy a home after they get married. Every situation is unique, and a specific trust like this may be the best option. However, it’s important to consider that a discretionary trust may be better in some situations.

Offering more flexibility

The problem with leaving specific instructions is that the trustee may not have very much flexibility to change how the money is used. A discretionary trust allows them to use their best judgment, so they can make alterations.

For instance, you may believe that it is best to leave money so that the beneficiary can go to college. But what happens if the beneficiary does not want to attend college at all? Say that they join the military or start a business right after high school. Maybe they decide to drop out of college to take care of a sick relative or perhaps they suffer from an injury or illness themselves.

In a situation like this, it may be best to use a discretionary trust so that the trustee can allow the beneficiary to use the money for other reasons. As long as you know that you can count on the trustee to make wise decisions, this may be more helpful for the beneficiary than giving them specific rules. Just make sure you know what legal steps to take to incorporate a trust into your estate plan.