Discretionary Trusts

Question 1

DISCRETIONARY TRUSTS

Answer 1

In a discretionary trust, the trustee is given discretion whether to apply or withhold payments of income or principal (or both) to a beneficiary.

Question 2

Creditors’ Rights

Answer 2

Before the trustee exercises their discretion to make payments to the beneficiary, the beneficiary’s interest is not assignable and cannot be reached by their creditors. Put simply, the beneficiary has nothing to
transfer and no interest for creditors to reach—the beneficiary merely has an expectancy to be a beneficiary. Creditors are usually allowed to attach the beneficiary’s interest but may not compel the trustee to make a distribution.

Question 3

Exception—Claims of Child, Spouse, or Former Spouse

Answer 3

The court can force the trustee to satisfy a judgment or order against the beneficiary for the support or maintenance of the beneficiary’s child, spouse, or former spouse.

Question 4

Beneficiary’s Rights

Answer 4

The beneficiary has no right to payment that they can enforce against the trustee. Thus, the beneficiary cannot interfere with the exercise of the trustee’s discretion unless the trustee abuses their power, in
which case the court will intervene