Discretionary vs Fixed Trust?

[Put_Option]

Discretionary and Irrevocable protects all parties.

[Killua]

Irrevocable trusts protects the grantor because the grantor lost control and has no right to those assets in the trust anymore.

Discretionary protects the beneficiary to a certain extent. Reason being, let’s say the beneficiary is irresponsible or there are claims against him, the trustee can actually choose to not disburse any money to the beneficiary. Without any money disbursed, the irresponsible beneficiary will have no money to spend away luxuriously or the claimants got nothing to claim against the beneficiary because he/she has no money disbursed from the trust.

Hope this clarifies.

[vg1]

@SorcererMikey

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.

AMEN…

[vg1]

I guess there is a trade-off between two main criterias and we can’t get both at the same time:

1. We need to specify the beneficiary and the amount in advance, which is possible under FIXED and not under Discretionary Trust, since Trustee have some flexibility in his decisions with regard to the SUM and Beneficiary.

2. We need to protect Beneficiary from legal claims, which is possible under Discretionary Trust, because of the dependence on the Trustee, but not possible under Fixed Trust, since it specifies the Beneficiary in advance, thus making the the GIFT viable to any legal claims?

Any Trust professionals here? I guess industry insight/experience could solve this dilemma. Thanks)

[KAWFS]

I am not a professional that deals with Trusts; however, the way I interpret it is that both a discretionary and fixed trust are funded in the same way - i.e. a set amount of money is put into a legal trust structure. Regardless of Fixed or Discretionary, if it is revocable the person sponsoring the trust can pull the money back (i.e. there could be a legal claim against the sponsor that would require the money to come out of the trust) if it is irrevocable there is no chance of the sponsor getting the money back - once in the trust it is in for good.

Moving on to the type of trust - if it is Fixed that means benefits are paid without the discretion of a trustee (e.g. $100k per year for the remainder of the beneficiaries life). At that point because the distribution of the money is certain, a legal claim could be made against it.

If the trust is discretionary, the trustee could decide to not give the money to the beneficiary because it would just be passed through to the person making the legal claim (creditor, etc.). They can choose how the benefits are distributed and protect the money from creditors or other legal claim that is not in line with the sponsors original bequest/wishes.

[vg1]

Well, curriculum explicitly states, that if you want to protect settler as well as beneficiary, then discretionary irrevocable trust need to be settled.

The only unclear point to me is, if the settler knows the amount and the beneficiary in advance and still sets the discretionary trust, would this make it possible for trustee in the worst case to alter/decline any disbursements to the implied beneficiary, if it’s deemed in the best interest of beneficiary, let’s say (heavy drug or gamble addict person)?

[PierreCFA]

What’s the hell?

[Margin_Call]

@gpmagnus

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

How do you know this is an exam specific question?

[KentC]

Very interesting…

[KentC]

[ov25]

now if the beneficiary is a minor - then would rather make it “discretionary”