The details and benefits of a discretionary trust

In South Carolina, discretionary trusts are an estate planning tool that allows the grantor to distribute assets to a beneficiary according to flexible guidelines based on the trustee’s discretion. The following points explain this type of trust and the characteristics it offers as part of an estate plan.

Discretionary trusts defined

Discretionary trusts allow a trust creator or grantor to transfer assets into the trust for the benefit of their heirs. The trust is irrevocable, and once the assets are transferred, they are owned by the trust, not the individual or the beneficiaries. This type of trust can manage the spending ability of beneficiaries who may not control their spending habits or have a problem with copious amounts of debt. Due to the nature of a discretionary trust, the beneficiary has no control over the amount or timing of the asset distributions.

What does the trustee do?

The grantor provides instructions on how they would like the assets managed and distributed, and the trustee has a fiduciary duty to carry out these instructions. The guidelines provided might be broad or specific. The trustee can customize the distributions based on their discretion and the beneficiary’s current needs and circumstances.

Protections

A discretionary trust protects assets from being seized by the grantor’s or beneficiary’s creditors. It protects the assets from divorce proceedings and legal claims because the trust owns the assets, not the creator or beneficiary.

The trust has specific reporting requirements, which help ensure that the trustee is managing the assets appropriately and following the guidelines set by the grantor. When establishing the trust, the grantor typically chooses successor trustees and may select appointers. If a trustee violates their fiduciary duty or otherwise mismanages the trust, the appointees can remove them and appoint one of the successor trustees to MANAGE THE TRUST.

Other benefits

Controlling asset distribution helps minimize estate taxes and ensure wealth preservation. Discretionary trusts can also provide for a special needs child without jeopardizing the funds they receive from government assistance.

Discretionary trusts are a valuable estate planning tool. Understanding their key features is essential to aligning the trust with your needs and goals.