Discretionary Trust


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Discretionary Trust

An arrangement whereby property is set aside with directions that it be used for the benefit of another, the beneficiary, and which provides that the trustee (one appointed or required by law to administer the property) has the right to accumulate, rather than pay out to the beneficiary, the annual income generated by the property or a portion of the property itself.

Depending on the terms of the instrument that creates the trust, such income can be accumulated for future distributions to the income beneficiaries or added to the corpus, the main body or principal of a trust, for the benefit of the remainderman, one who is entitled to the balance of the estate after a particular estate carved out of it has expired. This is a discretionary trust since the trustee has the latitude or discretion to give or deny the beneficiary some benefits under the trust. The beneficiary cannot compel the trustee to use any of the trust property for the beneficiary's advantage.

In this type of trust the beneficiary has no interest that can be transferred or reached by creditors unless the trustee decides to pay or apply some of the trust property for the benefit of the beneficiary. At that time, the beneficiary's creditors can reach it unless it is protected by a Spendthrift Trust clause. An assignee, a person who has received an interest in the trust from the beneficiary by assignment (a transfer of property), can hold the trustee liable for any future payment to the beneficiary by giving notice of the assignment. As an illustration, the settlor, one who creates a trust, delivers $10,000 to the trustee in trust for the beneficiary, and the trustee has the discretion to make any and every payment, or no payment at all, to the beneficiary from the corpus or income. Before the trustee has decided to make any payment to the beneficiary, the beneficiary assigns a right to $50 of any payment the trustee elects to make to him or her. The assignee notifies the trustee of the assignment and demands that if the trustee decides to pay the beneficiary any amount up to $50, the trustee must pay the assignee and not the beneficiary. If the trustee decides not to pay the beneficiary, the assignee has no right to payment. If the trustee subsequently decides to pay the beneficiary $50, the trustee will be liable to the assignee for it.

A person can create a discretionary trust for his or her own benefit, but creditors can reach the maximum amount that the trust can apply for or pay to the beneficiary under the trust terms, regardless of whether he or she actually received payment.

References in periodicals archive ?
As indicated above, a trustee of a true discretionary trust has virtually complete authority over trust distributions.
In some cases the capital appreciation of an asset held in the Nil-Rate Band Discretionary Trust can outgrow the increase in the Nil-Rate Band.
Although Equitas was formed and initially owned by Lloyd's, its ownership has now been transferred to a discretionary trust.
In some cases a nil-rate band discretionary trust will may still be the best option for you, for example if you want to retain the flexibility of distributing the trust assets to any number of beneficiaries taking into account their personal circumstances at the relevant time.
LONDON, July 22 /PRNewswire-FirstCall/ -- The Company was notified on 22 July 2005 of dealings in its Ordinary Shares of 305/14 pence each ("United Shares") by the Trustee of the United Business Media Qualifying Employee Share Ownership Trust (the "QUEST"), which is a discretionary trust for the benefit of UK employees (including executive directors) of the United Group, in connection with the exercise of SAYE options:
A discretionary trust may be the answer as regards the question of state benefits, but capital in a discretionary trust is subject to a review on the tenth anniversary, and amounts over the nil rate band (currently pounds 242,000) can attract an inheritance tax charge at half the death rate - ie 20pc.
Contractor name : ZARINS FAMILY DISCRETIONARY TRUST
LONDON, July 15 /PRNewswire-FirstCall/ -- The Company was notified on 15 July 2005 of dealings in its Ordinary Shares of 305/14 pence each ("United Shares") by the Trustee of the United Business Media Qualifying Employee Share Ownership Trust (the "QUEST"), which is a discretionary trust for the benefit of UK employees (including executive directors) of the United Group, in connection with the exercise of SAYE options:
For married couples, one option is to each set up a discretionary trust in your will, into which assets to the value of pounds 263,000 can be placed.
The SIP is a discretionary trust for the benefit of employees of the Company and participating subsidiaries, which holds Ordinary Shares acquired and/or awarded under the partnership, matching, free and dividend shares sections of the plan.
At the other extreme, a discretionary trust established for the benefit of others with a wide class of beneficiaries, all of whose needs are properly considered by the trustees, is likely to be far less exposed in the event of the divorce of any particular beneficiary (particularly if that beneficiary has not received, and is unlikely to receive, any benefit from that trust).