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How to Set Up a Discretionary Trust

A discretionary trust is a tool that is used to provide the trustee some discretion to handle the trust how they deem appropriate. One of the first thing that you should do when setting up a discretionary trust is select your trustee. With this type of trust, your trustee is going to have an unusually large amount of power when it comes to the assets contained in the trust. They will be able to make their own decisions when it comes to distributing these assets to beneficiaries. Therefore, you want to spend some time whenever you are selecting a trustee for this type of trust arrangement. You need to select someone that you believe has good judgment and is trustworthy. In many cases, you are going to want to select a family member for this role. If you do, make sure that they have good common sense and understand basic financial concepts.

Selecting Trust Beneficiaries

With this type of trust, you are going to be able to select beneficiaries that will receive the assets in the trust. This part of the process is when you decide who is going to get your estate when you pass away. Most of the time, you are going to want to include your children as beneficiaries to the trust. You could also choose your spouse or a charitable organization as the beneficiary.

Set Trust Guidelines

With this type of trust, you are going to be able to set up some guidelines that the trustee will have to follow. While you may not specifically tell them what they should do with the money, you need to provide general guidelines. For example, you may not want to decide exactly how much money one of your children is going to get when they reach a certain age. However, you can set a general guideline that the trust is designed to take care of a specific beneficiary financially and help pay for their education. It will then be up to the trustee to decide what is the best way to help that beneficiary. Whether that is paying for college tuition, or giving the child a lump sum of money when they turn 25, the trustee is going to make this decision. It is simply up to you to give the trustee a general focus for the assets in the trust.

Fund the Trust Using Assets

Once you have set up the rest of the trust, you will need to make sure that it is funded. This is going to involve changing the ownership of your assets over to the trust. If you are including real estate or some other form of property, you will need to change the title or deed to reflect this. You will also need to change the name on your financial accounts to the trust instead of your own personal name.