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Why a trustee may need to use their own discretion

On Behalf of | Apr 26, 2022 | Estate Planning

As you set up a trust, you’re probably focused on all the things the trust can accomplish and the specific ways that you can dictate how the money is used. If you just wanted to leave the money to your heir, you could do that without a trust. By using one, you’re giving yourself a chance to determine how and when they will obtain that money, along with what they can use it for.

While this is true, you may still want to give your trustee some flexibility by allowing them to use their own discretion in terms of how they distribute the money. After all, you can’t predict exactly what’s going to happen to your heir in the future or how things are going to play out, and you don’t want to put them in a situation where they can’t get financial assets that you otherwise would have wanted to give to them.

How could this happen?

One example of how this could happen is if you’re focused on creating an educational trust. You set it up so that it will pay for a young person’s college education. You don’t want them to be able to use it for anything else because you’re afraid that they would then squander it and not be able to go to college.

This is a good goal and a common reason that people use trusts, but you do want to keep in mind that other things may keep your heir from pursuing that goal. For instance, maybe they will decide to start their own company instead of going to college. Or perhaps they will come down with a disease or another type of ailment that means they can’t go to school.

These may be situations in which you would like them to be able to use their inheritance, but they still aren’t going to use it for college tuition. If the trustee has been instructed to only give them the money for college-related costs, their hands are tied. If the trustee has been told to use their own discretion to some degree, they may be able to determine that this is something you would have supported and they can give the heir the money to help them in whatever way seems most reasonable.

Designing the proper trust

You can see that there’s a lot to think about when you’re trying to set up a trust, so make sure you know about all the options you have and the steps you’ll need to take.