Plan With Flexibility: NY Discretionary Trusts

Trusts are powerful and highly versatile estate planning tools.  They are very commonly established by individuals for the benefit of their surviving family members after their death.  They can be used to control assets and how, when, and to whom they are distributed.  There are living trusts and testamentary trusts as well as revocable and irrevocable trusts.  Any of these trusts can be drafted to provide either mandatory or discretionary distribution provisions.

Discretionary trusts are those that have provided discretion to the trustee over when, why, and how much of a trust’s principal and income are distributed to the trust’s beneficiaries.  Mandatory trusts set out mandatory provisions over how and when trust assets and income are distributed - this mandatory schedule is laid out inside the trust document.  Discretionary trust beneficiaries do not have a right to a particular interest in the trust, they simply have the right to be considered for the appointment of principal or income from the trust.

Discretionary trusts have many uses but are most often used to provide for family members who lack the ability to manage their own financial affairs. This inability may be due to disability, age, a gambling or drug abuse problem, or even a history of poor financial decision-making.  When a grantor seeks to provide for a beneficiary like this, it may be difficult to anticipate the beneficiary’s needs with any specificity, and therefore providing the Trustee with the discretion to make distributions to them as they see fit is the best way to build in flexibility to meet future circumstances and ensure that the beneficiary’s needs are met, and the trust funds are not squandered.  For example, if a trust beneficiary with a history of drug abuse is in a period of recovery, the Trustee may use their discretion to make distributions to the beneficiary to aid in their recovery and help support them.  If, however, the beneficiary is actively using drugs, the trustee may choose to halt trust distributions in the interest of the beneficiary’s well-being.

A discretionary trust also can protect the trust assets from the beneficiary’s creditors.  If the beneficiary has no control over the trust assets and no mandatory scheduled distributions, the beneficiary’s creditors will not have the ability to access the trust funds.

Giving your trustee the discretion to determine when and how much of the trust assets and income are distributed to your beneficiaries provides the trustee with a great deal of power which also gives them the potential to abuse that authority.  It is imperative that you choose a trustee who will exercise their discretion in a responsible fashion and whose values are similar to your own.

Call the Law Offices of Roman Aminov, P.C. to speak to a knowledgeable estate planning attorney about what type of trust is best for you and your family.

This article is for educational purposes only - to provide you general information, not to provide specific legal advice.  Use of this post does not create an attorney-client relationship and information contained herein should not be used as a substitute for competent legal advice from a licensed local estate attorney in NY or your state.

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