A discretionary trust is a trust where the beneficiaries and/or their entitlements to the trust fund are not fixed, but are determined by the criteria set out in the trust instrument by trustor. Discretionary trusts can be discretionary in two respects. First, the trustees usually have the power to determine which beneficiaries (from within the class) will receive payments from the trust. Second, trustees can select the amount of trust property that the beneficiary receives. Although most discretionary trusts allow both types of discretion, either can be allowed on its own. It is permissible in most legal systems for a trust to have a fixed number of beneficiaries and for the trustees to have discretion as to how much each beneficiary receives.
Montgomery Maryland Discretionary Distribution Trust for the Benefit of Trustor's Children with Discretionary Powers over Accumulation and Distribution of Principal and Income Separate Trust for each Beneficiary
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FAQ
Paying Debts and Taxes Illinois, for example, requires executors to allow six months. California requires a bit less, with four months.
Several states require you to send a notice to all trust beneficiaries within a certain time after you take over as successor trustee of the trust. Most states give you 30 or 60 days to send this initial notice.
Some trusts require trustees to make mandatory distributions. These distributions might take place every month or every year. Often, a trust requires distribution of a percentage of the interest earned on trust assets during the year. Or the trust might list a specific amount of money or property to be distributed.
The British Virgin Islands (BVI) is a leading jurisdiction for the establishment and management of trusts, and in the so-called VISTA trust offers a form of trust unique to the BVI which is particularly attractive for holding shares in BVI incorporated companies.
Discretionary distribution means a distribution which the trustee is not directed to make, but is permitted to make in the trustee's discretion. For example, the language in a trust instrument providing for a discretionary distribution may contain the words "may" or "in the trustee's discretion".
A discretionary trust is one where there is no immediate benefit to the beneficiary. The trustees manage and distribute the assets in the trust subject to the powers conferred by the deed or will.
In the case of a good Trustee, the Trust should be fully distributed within twelve to eighteen months after the Trust administration begins. But that presumes there are no problems, such as a lawsuit or inheritance fights.
Discretionary beneficiaries have a right to be considered by the trustees for payments from the trust property but they do not have an automatic right to receive payments from the trust. The following are often named as discretionary beneficiaries: the settlor(s) children and grandchildren of the settlor.
The beneficiaries under a discretionary trust have no 'proprietary interest' in the trust fund unless the trustees decide on a distribution. This means they do not own the beneficial interest under the trust merely a hope that they will benefit.
With discretionary distributions, the grantor has given the trustee full discretion to decide which (and when) members of a defined group of beneficiaries are to receive either the income or the principal of the trust or both.