Discretionary Trust

A Discretionary Trust is a type of trust in which the trustee has the authority to decide how and when to distribute the trust assets to the beneficiaries. This discretion allows the trustee to tailor distributions based on the individual needs and circumstances of each beneficiary, rather than following a fixed schedule or formula.

In a Discretionary Trust, the trustee can withhold distributions if they believe it is in the best interest of the beneficiaries, or they may choose to distribute more to certain beneficiaries depending on their financial situation, health, education, or other relevant factors. This flexibility is particularly useful for protecting the interests of beneficiaries who may not be financially responsible or who may face external financial pressures, such as creditors or divorce settlements.

For example, if a trust is established for three children, the trustee could decide to allocate more funds to one child who is pursuing higher education while providing less to another child who is financially stable.

Additionally, a Discretionary Trust can provide tax advantages, asset protection, and can also facilitate the management of trust assets over time. Because the trustee has discretion, the trust can adapt to changing circumstances, such as shifts in the beneficiaries’ needs or changes in the financial landscape.

In the context of Texas, including areas like Houston, the rules governing Discretionary Trusts are outlined in the Texas Trust Code. This code provides guidance on the creation, administration, and enforcement of trusts, which can impact how discretionary powers are exercised by trustees in the state.