Why Use A Discretionary Trust?

Passing your assets outright to your children or grandchildren may seem simple, but it can leave what you’ve worked hard to build vulnerable to creditors, lawsuits, and divorcing spouses. A discretionary trust offers a layer of protection while ensuring your loved ones still benefit from your legacy.

A discretionary trust places your assets under the management of a trustee rather than directly in the hands of your beneficiaries. This structure allows your trustee to distribute funds for specific needs like education, health care, or housing while shielding the assets from external claims. Because the beneficiary does not own the trust assets outright, these funds are generally out of reach from creditors or legal disputes.

This type of trust is often irrevocable, meaning once it is established, it cannot easily be changed, providing long-term protection for the assets you place within it. You can fund a discretionary trust during your lifetime or have it funded upon your passing through your estate plan. The trustee you appoint, whether a trusted individual or a professional entity, will manage and distribute assets according to your wishes, providing financial oversight and maintaining protections.

Discretionary trusts are flexible. You can choose when and how distributions are made, whether you want the funds to cover medical expenses, help with a first home purchase, or support a new business venture. You also decide whether these distributions occur only after a certain age or are available at any time for specific needs.

Another advantage of a discretionary trust is its ability to support generation-skipping planning, which can help reduce estate tax exposure. Assets can pass down to grandchildren or future generations within similar protective structures, ensuring your family’s wealth remains secure while maintaining your intentions across generations.

If you’re concerned about your loved ones’ ability to manage an inheritance or want to protect assets from potential threats, adding a discretionary trust to your estate plan can provide peace of mind. It is one of many tools, along with your will, powers of attorney, and health care directives, that can help protect your legacy and support those you care about most. If you have questions or would like to learn more, give us a call at 605-275-5665.

Read more: When to Consider Discretionary Trusts for Your Estate Plan