What is a discretionary trust and how does it provide asset protection benefits?

A discretionary trust is a legal arrangement where assets are held and managed by a designated third party or trustee for the benefit of one or more beneficiaries. The trustee has wide discretion as to how and when the assets are used to benefit the beneficiaries. This type of trust is popular for asset protection benefits because it allows the grantor of the trust (the person who creates and funds the trust) to protect their assets from creditors and other legal judgments. In Washington, a discretionary trust can provide asset protection benefits because it can limit the amount of time creditors have to make a claim against the trust’s assets. In the event of a legal judgment against the grantor, the assets held in the trust are not available for award to creditors. Furthermore, the assets held in the trust are not considered assets of the grantor, thereby preventing them from being targeted and seized by creditors. In addition to providing asset protection benefits, discretionary trusts can also be used to transfer assets to other family members while controlling how and when they can be accessed. This type of trust typically allows the trustees to postpone or restrict when or how much the beneficiaries can receive. As a result, discretionary trusts can provide both asset protection and long-term financial planning benefits.

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