How Much Discretion Should a Trustee Have?

How Much Discretion Should a Trustee Have?

Creating a trust for a child under a certain age is a common, not to mention powerful, estate planning tool. Many trusts that are set up to benefit a child or young adult generally share a goal: to protect the beneficiary's property until the beneficiary is at an age when they can manage it themselves.

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Creating a trust for a child under a certain age is a common, not to mention powerful, estate planning tool. Many trusts that are set up to benefit a child or young adult generally share a goal, to protect the beneficiary's property until the beneficiary is at an age when they can manage it themselves.

Some trust attorneys will recommend the proceeds be distributed when the beneficiary turns 21, others prefer the age of 25, which is generally the age that young adults find their direction in life. Instead of just using an age to determine the distribution of the trust, which means when the beneficiary will receive their inheritance of the trust's assets, creating a trust allows you to also set the completion of a certain goal, such as graduating from college. Other types of trusts, known as "incentive trusts", keep beneficiaries productive by matching their own earned income with additional benefits from the trust.

It is important to remember that each family is different with different needs, so there is not a correct answer to the question of when to terminate the trust (another phrase that means receiving the inheritance). A trust can be created to allow the trustee, the person managing the trust for the benefit of the beneficiaries, discretion in distributing the assets.

For example: If you created a trust for a grandson to receive money on his 30th birthday, but he is 26, married with children and in a home that is facing foreclosure, wouldn't you want the trustee to be able to distribute the assets to him earlier?

One of the advantages of creating a trust versus leaving a bequest in a will is not only the ability to set terms and conditions, but also to allow flexibility. Not only to allow flexibility in how and when the beneficiary receives the trust's proceeds, but perhaps the flexibility to allow a trustee to make decisions that allow for life's curveballs.

Of course, the flexibility should be based on your needs and goals, your family's needs, and the people involved. Work with a trust attorney to see if a trust can play a role in your estate plan.

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