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Should you use a discretionary trust or more specific instructions?

On Behalf of | Jun 10, 2024 | Estate Planning |

When you’re setting up a trust, you can certainly choose specific instructions that you want to give to the trustee. A common example is saying that they can only pay the beneficiary for college tuition or other educational costs. You may have set it up this way because you believe the beneficiary is a young and frivolous spender, so you want the trustee to ensure that the money actually goes to something worthwhile, like getting an education.

But there’s another option here, which is to give that trustee the discretion to do as they please. You’re allowing them to make the decisions because you believe they would do a better job of it than the beneficiary themself. Which tactic should you use?

Potential benefits of a discretionary trust

If you have a very specific goal, either trust can work. You certainly could set it up to pay for educational costs or anything else that you want the beneficiary to focus on.

But there’s one major benefit of using a discretionary trust instead, which is that it gives the beneficiary flexibility to take a different path. Maybe they want to start a business because they’ve already invented a product, so they’re not going to attend college. Maybe they’re interested in joining the military and serving their country. Perhaps they’re working as an artist and they don’t need any further education because they’re already growing their audience.

With a discretionary trust, the trustee could authorize payments for things like business costs, art supplies, the purchase of a family home, future medical needs and much more. They can adjust the way the trust is based on what your beneficiary actually needs.

As you can see, there are many different options when it comes to estate planning. Just be sure you know what is best for you and your family.