Estate planning often starts with writing a will, and some people assume this is the only way to transfer assets. If you want to leave something to your firstborn, for instance, you put their name in the will and list the assets that they’re going to get. It is simple, quick and easy.
You certainly can do this, and it is a good place to start. But you never want to assume it’s the only option you have. A lot of people actually use trusts, such as a discretionary trust, to pass their assets on. You can do this along with the will or you can use a trust for some heirs instead of a will.
How does it work?
A trust works by taking control of the money or other assets on your behalf. You fund the trust with your estate plan. The trust then pays the money out to your heir based on whatever rules you set up when you created it.
With a discretionary trust specifically, you’re giving the trustee discretion and the ability to make decisions on their own. Other types of trusts will set up guidelines, like saying that money can only be used for medical expenses or college expenses. But the discretionary trust simply notes that the trustee has to agree with the heir that it is a valid use of the money in order for the withdrawal to be made.
This can be beneficial because you may not be able to predict what your heir will need, but you can choose a trustee who will be able to help when you no longer can. If you’d like to set up something like this, take the time to look into all the necessary legal steps.