What is a Discretionary Trust?
In a discretionary trust the beneficiaries do not have a fixed entitlement or interest in the trust funds. The trustee has the discretion to determine which of the beneficiaries are to receive the capital and income of the trust and how much each beneficiary is to receive. The trustee does not have a complete discretion. The trustee can only distribute to beneficiaries within a nominated class as set out in the terms of the trust deed. What are the elements of a Discretionary Trust? In determining how a discretionary trust works the role of each of the six elements of a discretionary trust should be known. The role of the six elements may be summarised as follows: 1. The Trustee The trustee is the legal owner of the trust property although not the beneficial owner. The trustee carries out all transactions of the trust in its own name and must sign all documents for and on behalf of the trust. The trustees overriding duty is to obey the terms of the trust deed and to act in the best int
A discretionary trust must also be funded with the resources of another individual, either during his or her lifetime, or through the provisions of his or her will at their death. Such a trust arrangement is appropriate when an individual establishing the trust wants to it to be available for the benefit of a group of beneficiaries which includes the recipient or prospective recipient of means-tested programs. The terms of the trust do not mandate that any beneficiary receive any particular amount of the trust funds, nor can any beneficiary demand that trust funds be distributed for his or her benefit. Therefore, the trust funds are not considered to be assets of any one beneficiary, and there is not a payback provision. A discretionary trust can also be established for a single disabled beneficiary, but it may be subject to more scrutiny as an available resource for benefit eligibility purposes.
Discretionary trusts are used by families to make long-term financial provision for sons and daughters. The key point about a discretionary trust is that funds or property put into the trust do not count as assets for the purposes of benefits or in terms of the responsibility of the local authority or health authority to fund care. This is because the funds put into a discretionary trust do not belong to the beneficiaries but to the trust.
Discretionary trusts are trusts or mutual fund programs that are structured to allow the trustee a fair amount of leeway in administering the resources of the trust. In the case of a mutual fund, the trustee is not limited to investments in particular types of securities. This approach to a trust arrangement usually takes place when the grantor has a high degree of confidence in the ability of the trustee to manage the discretionary trust to the benefit of all persons concerned. When it comes to a trust fund, a discretionary trust normally provides the trustee with general guidelines for administration of the trust, but leaves the specifics of the managing the trust to the discretion of the trustee. For example, a parent who established a trust for a minor child may specifically grant the trustee the authority to disburse funds that will aid in furthering the child’s education. With a discretionary trust, it is up to the trustee to determine what represents an educational opportunity f
