What is a discretionary trust?

A discretionary trust is a type of trust created to hold and manage assets for the benefit of a beneficiary. It is called a “discretionary trust” because it allows the trustee to decide how to distribute the assets or income generated from the trust. In Indiana, the trustee is given wide latitude in distributing the assets of the trust. The trustee must act in the best interests of the beneficiary, but typically has discretion to choose how they will allocate the trust’s assets based on the trust document and the specific factual circumstances. Discretionary trusts are often used in estate planning. They provide flexibility to the trustee, as the trustee can distribute the trust’s assets to the beneficiary in any manner that they think is best. For example, the trust documents could set up certain criteria that the trustee must consider when making distributions, such as the beneficiary’s age, current needs, or future goals. The trust documents may also provide guidance on how funds should be used, such as providing educational funds for the beneficiary. Discretionary trusts also provide important tax benefits. Distributions made from a discretionary trust may be subject to lower taxes than other types of investments or distributions. Additionally, discretionary trusts provide the potential for asset protection, as the assets contained within the trust are generally protected from creditors. Overall, discretionary trusts are a powerful tool for estate planning in Indiana. They allow trustees to act in the best interests of the beneficiary, while also providing potential tax and asset protection benefits. It is important to understand how to properly set up and maintain a discretionary trust, as they can be powerful tools for estate planning.

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