What is a discretionary trust?
A discretionary trust is a type of trust set up to allow the beneficiary of the trust to receive whatever is available under the trust document. It is also known as a “spendthrift trust.” In Maine, a discretionary trust is created when the grantor (the person creating the trust) transfers his or her money or other assets to the trustee (the person handling the trust) and gives the trustee discretion over how the assets are used for the benefit of the beneficiary. The grantor then decides how much of the trust assets the beneficiary can receive, and when they can receive it. The trustee is responsible for determining when the beneficiary can access the assets and must act within the guidance provided by the grantor. The grantor may also specify conditions that the beneficiary must meet before they can receive money from the trust; such conditions are called trust objectives. Examples include providing for the beneficiary’s education, providing for their medical expenses, and establishing a retirement fund. In Maine, discretionary trusts are very popular as they provide the grantor with more control over how the trust money is used and who can receive it. They also provide tax advantages for the grantor and the beneficiary, and can be tailored to meet the unique needs of each individual.
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