Define: Discretionary Trust

Quick Summary of Discretionary Trust

A discretionary trust is a type of trust arrangement where the trustee has discretion over how to distribute trust assets among a group of beneficiaries. Unlike fixed or mandatory trusts, where the beneficiaries have predetermined rights to trust assets, discretionary trusts give the trustee broad discretion to determine when and how distributions are made, as well as the amount and timing of those distributions. This flexibility allows trustees to consider individual circumstances, needs, and changing circumstances of beneficiaries when making distribution decisions. Discretionary trusts are often used for estate planning purposes to protect assets, minimize tax liabilities, and provide for the financial well-being of beneficiaries, particularly in complex family or financial situations. The terms and conditions of a discretionary trust are typically outlined in a trust deed or document, which sets forth the powers, duties, and limitations of the trustee and establishes guidelines for trust administration.

A form of trust, usually express, where there is some discretion to be exercised by the trustee(s) in the allocation of benefits of the trust. Unlike in a fixed trust, the beneficiaries of the discretionary trust have no identifiable equitable interest in the trust property until the discretion of the trustee is actually exercised.

See also: fixed trust, express trust, equitable interest (land and property).

Disclaimer

This site contains general legal information but does not constitute professional legal advice for your particular situation. Persuing this glossary does not create an attorney-client or legal adviser relationship. If you have specific questions, please consult a qualified attorney licensed in your jurisdiction.

This glossary post was last updated: 29th March, 2024.