When many people decide to set up a trust as part of their estate plan, they pick a specific goal that they want to accomplish. For instance, you may hope that you can pay for your grandchild’s college tuition. You can set up an educational trust that states that the money must be used for educational costs until the student graduates from college.
A discretionary trust is much different. Rather than having a singular focus, you just pick a trustee, and you give them the discretion to decide how the money should be used or when it should be passed to your heirs. Why would you use a trust like this?
Picking someone you can count on
The biggest thing here is that the discretionary trust allows you to select a trustee that you can count on to do things that you would approve of. You may not be sure that your heir would, perhaps because they are young or because you’ve seen their spending habits in the past, but you know that this trustee isn’t just going to let them squander their inheritance.
At the same time, a discretionary trust is more flexible. If you create an educational trust and then your heir simply doesn’t want to go to college, what happens to the money? A discretionary trust would give the trustee the ability to give them the money for something else important, like buying a family home or starting a business.
Setting it up
If you’re interested in using a trust as part of your estate plan, take the time to consider all the options you have and exactly what you’ll need to do to set it up.