Discretionary Trust

A discretionary trust allows you to place your property into a trust and pass outside of probate when you pass away. Below we review important considerations in establishing a discretionary trust.

Last updated on March 20th, 2019

Operation of a Discretionary Trust

Unlike other trusts, a discretionary trust operates under the direction of your appointed trustee. You delegate complete or limited control to your trustee, who then manages the trust according to the trust terms. Transactions such as withdrawing income or distributing property to your beneficiaries are performed by your trustee.

Your discretionary trust documents outline how your trust is managed by the trustee. However, you leave the minor details of trust administration to your trustee, who is given flexible power over the trust.

Forming a Discretionary Trust

You form your discretionary trust by signing documents to establish your trustee’s guidelines and list the property to be owned by the trust. These documents also include a list of your trust beneficiaries.

As with any trust, you are only able to transfer property that you own outright into the trust.

Untitled property must be included as an itemized list with your additional trust documents.

Titled property transferred into the trust must have the title ownership changed to the ownership of the trust. Failing to change title ownership of property disqualifies that property from being considered “trust property.”

Any property that is inaccurately accounted for in your trust documents is not protected from probate and intestate succession.

Adding Property to Your Discretionary Trust

You are able to add property to your trust at any point during your lifetime.

Untitled property is added by amending the list of trust property to include your acquired property.

Titled property is added by changing title ownership to that of the trust, as well as including it in your amended list of trust property.

Your trustee is the first person who interacts with your trust property; however, access is only granted following your death. Trustees do not have power to manage the trust until the grantor has perished.

Considerations

Remember, you’re giving your trustee a lot of power over your trust property. While they are still required by law to adhere to your guidelines, they are given ample leeway to act as they see fit to protect the interest of your overall trust property. Therefore, it is wise for you to choose someone who is financially responsible to manage the trust.

You must also ensure that your beneficiaries understand how the trust operates. The trustee is in charge of the trust, and beneficiaries are only granted access by the trustee. It is important that these parties maintain a balanced relationship in order for the trust to function as planned.

It is also important to consider that your trustee is compensated reasonably for the amount of work that they are expected to perform. A large trust with complex guidelines carries a heftier income for your trustee than a trust with minor property management. Your trustee is compensated by the trust, so it’s important for you to consider the financial responsibilities of forming a trust with central trustee management.

Conclusion

A discretionary trust grants your trustee a lot of power, which means your guidelines should be air-tight to protect your trust. Consulting with a lawyer is encouraged, as your trust documents are open-ended and need careful formation in order to safeguard your beneficiaries’ inheritances.

Schedule a consultation with our estate planning attorney to discuss the terms of your potential discretionary trust.

Need an attorney?

Our articles provide general information about all of our practice areas. If you're looking for legal counsel specific to your situation, you'll need to talk to a lawyer.

Share This