Discretionary “Spendthrift” Trusts

Discretionary "Spendthrift" Trusts

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If you are planning on leaving assets to a beneficiary who is not good with money, has or may have creditor issues, or has a marriage mate you really don’t care for, you may want to consider a discretionary trust that provides protection for spendthrifts, from inheritance-eroding creditors, and from potential divorce by an undesirable in-law. Distributions are made only at the discretion of the trustee and the beneficiary has little to no rights to demand the assets. By having these terms in the trust, the beneficiary does not own the trust’s assets; and thus, the assets usually are not subject to creditor’s claims or divorce.

Discretionary trusts are particularly useful to parents of mentally ill persons. Persons with mental illness may fluctuate between periods of capacity and incapacity their entire lives. During periods of capacity, government benefits may not be necessary; and a special needs trust may be too restrictive. The answer is leaving assets in a trust where it is at the discretion of the trusted person you select as trustee to make distributions as may be in the best interest of the mentally ill loved one.