Once you have decided to incorporate a trust into your estate plan, you must then decide which type of trust is right for your family. There are countless variations of trusts available to you as you create your estate plan. Each type offers its own unique advantages and disadvantages. Discretionary trusts are one such option available to you.
Three Reasons to Consider Discretionary Trusts
There are many potential benefits to a discretionary trust. Consider the following:
- Creditor protection – The beneficiary lacks management and control over the trust. The trustee has discretionary control over the distributions of trust assets, and can limit or stop distributions altogether, as he sees fit. As a result, creditors cannot force a trustee to make distributions since the beneficiary himself cannot compel distributions.
- Tax benefits – Since the trustee has discretion with regard to the distribution of income from the trust, he can make decisions as to which beneficiaries, if any, should receive the income. This is especially useful in cases where there is a large disparity in the overall income of the beneficiaries.
- Estate planning – Sometimes, you may be in fear that your loved one is facing bankruptcy, a lawsuit, or an impending divorce. In these cases, distributing trust assets outright to your beneficiary could make those assets reachable by creditors, ex-spouses, or other parties. Discretionary trusts may offer you peace of mind when it comes to estate planning with beneficiaries facing these types of issues. The trustee has the control and flexibility to make the decisions that are in the best interest of the trust itself, as well as the beneficiaries as a whole.
Discretionary trusts are just one of many tools that may serve you well as you create your estate plan. If you are interested in learning more about estate planning tips and ideas in Anaheim, we encourage you to sign up for our free newsletter today!