Discretionary trust

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Discretionary trust

In the context of mutual funds, refers to a mutual fund or unit trust whose management decides on the best way to use the assets without restriction to a specific type of security.
In the context of trusts, refers to a personal trust in which a trustee has the power of decision as to how much income or principal each beneficiary receives.

Discretionary Trust

A trust in which a trustee is able to make decisions without the need to consult others. For example, a discretionary trust gives the trustee the right to make significant investment decisions without permission from or even consultation with the trustor or the beneficiary. However, the trustee has a fiduciary responsibility to manage the assets as well as possible; decisions made in a discretionary trust must be made in accordance with the prudent man principle.
References in periodicals archive ?
Since a beneficiary of a discretionary trust has no enforceable right to compel a trustee to make a distribution, the creditor of such a beneficiary also cannot compel the trustee to make a distribution for the benefit of the debtor-beneficiary.
Bruce Berlinger appealed an order of the trial court granting Roberta Casselberry's motion for contempt and motion for a continuing writ of garnishment over any disbursements made from the Berlinger Discretionary Trusts to or for tire benefit of Berlinger.
Harvey told the committee: "I don't know who the beneficiaries of this discretionary trust are, no.
Creditor protection is at its greatest in a discretionary trust because the beneficiary is not entitled to receive distributions and is also unable to control the decision-making process about who may receive distributions.
A Discretionary Trust May Be Subject to a Writ of Garnishment --The court in Bacardi did not need to address how its ruling should apply to discretionary trusts.
Where a husband is the business owner for example, he could leave the IHT nil rate band and the shares in the family trading company on a discretionary trust, of which the widow was a trustee and beneficiary, with the balance of his assets passing to his widow.
Many married couples/civil partners made Wills which were designed to utilise the Nil-Rate Band on first death by putting its value into a Discretionary Trust.
Discretionary trusts can be used if you want to set levels for how much income or capital to pay or pass to each of the beneficiaries, and when.
After sale, the cash could then only be passed to the discretionary trust in IHT free manner with careful planning and giving an amount equal to the IHT 'nil rate band' every seven years.
Furthermore, if income is not being distributed from a discretionary trust, then it will be taxed at up to 50%.
Similarly, total discretionary trusts provide needed protection when an individual cannot hold onto money or has an addiction.
But wills which include nil rate band discretionary trusts can avoid this pitfall.