Hi everyone! Can anyone tell me which type of Trust is better suited for a bequest, taking into account that there might be legal claims in the future,
Fixed Trust or Discretionary?
thanks in advance
Fixed. The answers are already fixed.
I think should be discretionary, bc in this case, the beneficiary has no power to decide when or how much he will get the asset and the trustee would have this decision and that^s why beneficiary get protected from claims from creditors in the future…
yes, that is correct
I did not know that fact. Great!
well, If we assume that the trust is also irrevocable, would that be sufficient to protect the beneficiary and the grantor from any future legal claims? Because it seems to me that discretionary and irrevocable trust would still mean the grantor has some sort of discretion over the assets, thus the assets can still be claimed from third parties, as being under discretion of the grantor?
edited*
If it’s irrevocable and discretionary it protects both the Grantor and the Beneficiary. No other way does both. Discretionary means it’s under the discretion of the trustee, the grantor is not the trustee. Just read it
as far as I remember, discretionary would mean that the beneficiary or the bequest amount have not been defined yet So if I want to specify an amount and the beneficiary, discretionary trust can’t be used, only fixed, correct?
waitl… so what is the consensus answer here - is it fixed or discretionary?
vg - I kindly and respectfully ask that you please desist from asking these questions, whether so that you honor my request, your CFA Candidate pledge or the wishes of the AF moderators to not discuss any exam specifics.
Thank you!
Magnus
Sure, no problem.
Regards,
Thank you! I understand the need to re-hash exam questions, however, it is not only unproductive, as we have already finished the test, but against our pledge, which I think most people, yourself included, take seriously. Go grab a beer and enjoy summer!
direct violation
moderator should remove this
why is this post a violation? The OP asked a question on a piece of level III content - he didn’t give any reference to a specific exam question or otherwise. then a number of people jumped in saying that this is a violation and to stop the discussion…to me these people are the ones who implied that this topic is exam content and are therefore creating a potential violation.
at what point does it become OK to ask questions regarding topics that were on the exam? to me that is the whole point of this forum - we discuss content. if asking questions about exam content without any direct reference to the exam is a violation…this whole forum is a violation.
“A well-drafted discretionary trust allows the trustee to add or exclude beneficiaries from the class, giving the trustee greater flexibility to address changes in circumstances. The trust is discretionary because the trustee has the discretion to give or deny some benefits under the trust. The beneficiaries cannot compel the trustee to use any of the trust property for their advantage.”
“The beneficiaries have no interests that can be transferred or reached by creditors unless the trustee decides to pay or apply some of the trust property for the benefit of the beneficiaries. At that point, the beneficiaries’ creditors can reach it unless it is protected by a spendthrift clause.”
https://www.justia.com/estate-planning/trusts/fixed-and-discretionary-trusts/
Agree with Sorcerer. If you guys think it’s wrong to talk about any material which has been covered on any exam then there is not much left to talk about. The violation is indicating that this material was on an exam (which multiple people, but not the OP, have stated). My two cents.
So to me, this says that the type of trust that provides protection from litigation for all involved is a discretionary trust. The trust structure protects the settlor, and the discretionary element protects the beneficiaries because they assets are under the “discretion” of the trustee and thus they have some sort of limited legal ownership? Am I reading this right?
I would think your interpretation is correct. The way I see it, in a Fixed trust, fixed payments are made to the beneficiary based on the instructions in the trust. It could be distributions over time, or in a single sum. Once those payments are made to the beneficiary, those assets become the property of the beneficiary and thus become subject to legal claims. I’d imagine there is also the possibility to place a legal claim on those payments even before they’re made, since the payments are known in advance and fixed in nature.
Discretionary trusts are used when say one child out of three is extremely irresponsible and doesn’t handle money properly. Then the trust is established as “discretionary” so the settlor can decide who gets how much from the trust over time. It’s doesn’t enhance protections from legal claims is my understanding.
I wonder… Is the purpose of our reading really to understand such minutes legal differences? It’s as basic and equivalent to not-allowing a calculator to test multiplication & division skills.
Could i say, “Seek legal opinion from experts on that field” 