A discretionary trust arises when property is vested in trustees and a class of beneficiaries or named persons appear as the trust objects, but the trustees have complete discretion as to the payment of the income, or the capital, or both. The trust may obligate them to distribute all the trust property among the class, but give them a discretion as to whom they make payments within the class, and as to how much they pay to each.
The essence of a discretionary trust is that the trustee cannot be compelled to pay anything to a beneficiary–that any payment of either income or capital, is completely within the discretion of the trustee. Thus, the beneficiary will have no determinable or vested interest in the assets of the trust.
A discretionary trust may be established during the lifetime of the settlor, or alternatively, through a testamentary disposition made under a will.
Typically, discretionary trusts are used in the following situations:
- Henson Trust: provide additional benefits to a disabled person who is receiving government benefits (e.g. a guaranteed annual income) without disentitling the person to the government benefits.
- Creditor protection trust (also known as asset protection trust): protects assets from creditors, lawsuits and judgments.
- Spendthrift trusts: a beneficiary is terrible with money.
Duensing Law offers an extensive range of legal advice catered to your needs. Our seasoned team specializes in wills and succession planning, probate and estate administration, estate litigation, residential and commercial real estate transactions. As estate planning lawyers, our team is committed to distributing your assets in accordance with your wishes.
If you have any questions about estate planning involving discretionary trusts or any other estate planning or administration matters, our estate planning lawyers can be reached at 416-601-4769.
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