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Discretionary Trust

Discretionary trusts are trusts are very different from other trusts in that the beneficiaries and their specific gifts or entitlements from the trust are not set in stone but are determined by specifics set by the directives of the trust. The reason these trusts are discretionary is that the trustees retain the power to name the beneficiaries and to determine how much the beneficiary receives. Most beneficiary trusts also provide the power to add or change beneficiaries so long as they are from the same class or pool or beneficiaries. This in particular allows for the trustee to have flexibility over the trust and its distribution. There are two types of discretionary trusts, exhaustive which requires the trustees to distribute all of the accrued income of the trust and non-exhaustive which allows the trustees to accumulate income.

Fast Facts

  • Discretionary trusts are protected from creditors; beneficiaries who have creditors hounding them can't claim the trust and so it is protected.
  • Discretionary trusts, in some states, are used to protect assets from divorce settlement, state laws should be checked before making this decision.

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