While irrevocable trusts are a useful estate planning tool, there are times when grantors prefer to have a little more control over how the money is used after they are gone. Florida law allows for trusts to contain clauses giving the trustee discretion to make or pause distributions when they believe it is in the best interest of the beneficiaries.
Discretionary distribution protection can help a grantor in Coral Gables ensure certain trust funds end up in the right hands and avoid creditor claims. Our skilled trusts attorneys could advise you on how to use these trusts to further your final wishes while shielding your beneficiaries from third-party claims.
Our Coral Gables team could further explain the concept of discretionary distribution protection, which is a type of provision contained in an irrevocable trust. Much like a spendthrift clause, it is used to exert a degree of control over how distributions from the trust funds are made.
Because this is a type of irrevocable trust, it cannot be altered or revoked by anyone without a court order, including the grantor, trustee, or beneficiaries. The irrevocable nature of these trusts can complicate things, but it can also offer some notable tax benefits.
There are several reasons why a grantor in Coral Gables might want to include a discretionary distribution protection clause in their trust. First, this clause gives the trustee significant leeway to distribute trust property in a way that will protect a careless beneficiary from themselves. Second, it can also prevent a beneficiary’s creditors from reaching the funds held in the trust.
These benefits are possible because of one reason—the assets in question are legally owned by the trust, not the beneficiary. Despite having a valid claim against the beneficiary, these creditors do not have any legal right to the assets owned by the trust.
The role of a trustee in these cases is important. They ultimately have discretion on when distributions are appropriate and when they are not. They often create a schedule of periodic disbursements as opposed to handing over funds to the beneficiary in a lump sum. It is also their task to defend the trust from claims from aggressive creditors.
There are other factors to consider outside of discretionary distribution protection clauses when it comes to protecting beneficiaries and blocking creditors. First and foremost, it is vital to select the right trustee to oversee the trust. They will have to make some difficult decisions regarding when to disburse funds to beneficiaries and when to hold on to the money instead. Their choices can also have consequences related to creditor liability.
Many grants that rely on these clauses also make use of spendthrift trusts. The combination of the two can provide powerful protection that prevents misuse of trust funds and shields beneficiaries from their own creditors. Adding spendthrift language to the trust can prevent creditors from forcing your beneficiary to assign them rights to the trust assets.
There are many options available for you to customize your trust agreement in order to protect your beneficiaries, both from their creditors and themselves. One of the most effective tools is discretionary distribution protection.
Securing the ideal trust for you and your heirs does not happen overnight. It takes effort to set up a trust that will suit your needs, and our team is here to accomplish that task on your behalf. Reach out as soon as possible to discuss your options during a private consultation.
We evaluate your case and determine how we might be able to help.
We will meet with you to discuss your next options and lay out a plan.
Our team guides you throughout the process so you feel confident about your choices.
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