DISCRETIONARY TRUST
Back to GlossaryDefinition
A trust set up for the benefit of one or more beneficiaries, but the trustee is given full discretion as to when and what funds are given to the beneficiaries.
Summary
A discretionary trust is a flexible estate planning tool where a trustee has complete authority to decide when, how much, and which beneficiaries receive distributions from the trust. Unlike fixed trusts where distributions are predetermined, discretionary trusts give trustees the power to adapt to changing circumstances and beneficiaries' needs. The trustee must act in good faith and in the best interests of beneficiaries, but has broad decision-making power over distributions.
Usage Context
Essential when studying estate planning, trust law, wealth management, and tax planning strategies. Important for understanding how families and businesses structure long-term financial arrangements.
Common Confusions
- Thinking beneficiaries have a right to demand distributions
- Confusing discretionary trusts with fixed trusts
- Believing trustees can act arbitrarily without any legal constraints
- Assuming all trusts operate the same way
- Misunderstanding the role of trustee discretion versus fiduciary duty
