A discretionary trust is a type of trust where the trustee has the power or discretion to decide how the trust's income or capital will be distributed among the beneficiaries. The trust deed outlines the terms, including the beneficiaries and the scope of the trustee's discretion.
Discretionary trusts are used for a variety of purposes, including estate planning, asset protection, and tax planning.
They offer flexibility in managing and distributing assets, allowing trustees to consider the changing needs and circumstances of the beneficiaries. The trustee’s decisions must be made in accordance with the trust deed and with a fiduciary duty to act in the best interests of the beneficiaries.
Discretionary trusts can be particularly useful in situations where beneficiaries have differing needs or where the settlor wishes to keep the distribution of assets flexible.
Estate Planning: Utilized to provide for beneficiaries in a flexible manner, taking into account potential changes in circumstances.
Tax Law: This can offer certain tax advantages, depending on jurisdiction and specific trust arrangements.
Many assume that the trustee in a discretionary trust can distribute assets in any manner they choose, without restriction.
While trustees do have significant discretion, their decisions are bound by the terms of the trust deed, the trust law, and their fiduciary duties to act in the best interests of the beneficiaries. This framework ensures that the trustee's discretion is exercised responsibly and within legal boundaries.
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