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Estate Planning

Discretionary Trusts

Your assets should be distributed at the most appropriate time. The timing of an asset transfer can have significant tax effects, reducing the net amount of any distribution.

Your estate is often exposed to the financial and personal circumstances of your beneficiaries. You should consider the possibility that at the time a beneficiary inherits part of your estate, they could be a minor or spendthrift, or experiencing financial or relationship difficulties.  The timing of the distribution is therefore critical. If the assets are distributed at an inappropriate time, they may be lost to creditors and ex-spouses or misused by minors and spendthrifts.

The best way to ensure that your assets are distributed at the appropriate time is to establish a discretionary trust (including a testamentary trust). Such a trust provides the trustee with full discretion and flexibility as to how, when and to whom the assets are to be distributed. There are a number of examples that illustrate this point. They are;

  • If a beneficiary is a bankrupt or has a number of creditors, the trustee may decide not to distribute any assets until the beneficiary has been discharged and the creditors have been paid. Delaying distribution in this instance would protect the assets.
  • If a beneficiary is a minor or spendthrift, the trustee may distribute as much of the income and property that is required for day-to-day living expenses and delay the full distribution of the assets. This would assist in preserving assets for the future.
  • the trustee may run  his or her discretion to distribute income in a tax effective manner. A greater amount of income may be distributed to those beneficiaries who will be paying the least amount of tax.