September 23, 2019
Medical Malpractice Attorney
While you’re setting up your estate plan, choosing the right entities to protect your assets and your family from unnecessary taxes, legal fees, and lengthy court hassles is vitally important, if you want to provide your family with stress-free security upon your passing. For complex estates, you may need a few different entities and vehicles for your various types of assets and beneficiaries to fully ensure your wishes are executed as you intend, and so no one can interfere with their own ideas or misjudgments.
A discretionary trust is one type of entity you can set up for your beneficiaries while giving a trustee full discretion regarding what funds should be provided to the beneficiaries and when. In this scenario, your beneficiaries have no legal rights to the funds until they are paid out to them, and the unpaid funds are not considered a part of their assets. Some individuals set this trust up with the rule that the beneficiaries will not acquire the funds until they reach a certain age, or they are allotted a certain monthly allowance determined by the trustee. The trustee becomes the legal owner of the trust, but they cannot benefit from it. As well, beneficiaries cannot demand income or assets from the trustee.
This type of trust is beneficial for beneficiaries who you know cannot be trusted or relied on to manage large sums of money or investments responsibly. It is also valuable if there are creditors they need to be protected from.
The discretionary trust is useful for beneficiaries who are:
- Disabled or mentally impaired
- Bankrupt or in debt
- Prone to divorce or other unstable relationships
To have a successful discretionary trust, you must be able to fully rely on the trustee to make the right decisions about paying out the trust assets, in the best interest of the beneficiaries. This can unfortunately lead to resentment, mistrust, and suspicion. So, to ensure the trustee continues to act in the best interest of the beneficiaries, you may assign a few people to be “appointers” who can vote out the trustee and assign a new one. If you have minors involved, you may also consider assigning a guardian who can “veto” the trustee’s decisions at any time.
Ensuring Your Final Wishes
Protecting your assets and your beneficiaries while leaving them with financial security is a great legacy to leave behind. But, without the proper protections and entities put into place, things may not go the way you would like. Speak with an estate lawyer in Sacramento to ensure your estate is well-planned, setup correctly, and that there are no loop-holes left for anyone to take advantage of.
Thanks to Yee Law Group for their insight into estate planning and discretionary trusts.