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Trust Basics: Discretionary Trusts vs. Non-Discretionary Trusts

Trust Basics: Discretionary Trusts vs. Non-Discretionary Trusts

There are two basic types of trusts: discretionary and non-discretionary. Depending on your individual circumstances, understanding the key differences between the two types of trusts can be significant.

Discretionary Trust

Beneficiaries of discretionary trusts generally have no control over any of the assets within the discretionary trust and/or how the assets are distributed. The appointed trustee(s) manage the trust funds and assets for the beneficiaries and have full decision making authority on whether to advance funds to one or more beneficiaries or to spend the funds on their behalf.
This can be a particularly useful set-up for individuals with disabilities who are receiving PWD, as BC Employment and Assistance legislation does not consider assets held in a discretionary trust for the benefit of a disabled beneficiary to be an asset for the purposes of determining assistance. That said, if the disabled beneficiary had control of the funds or assets before they were placed in the discretionary trust, they may become ineligible for assistance.

Non-discretionary Trust

Under a non-discretionary trust, the trustee does not have full authority over how the trust assets are distributed or paid out. In some cases, one or more of the beneficiary may have partial control over the distribution of the assets held in trust and in other cases, the trustee is simple required to distribute trust assets and income according to predetermined instructions.
Individuals with disabilities who are on PWD or another form of government assistance can be cut off from governmental support if the capital contributed to a non-discretionary trust for which they are a beneficiary exceeds an established maximum of approximately $200,000. Beneficiaries of non-discretionary trusts holding assets in excess of $200,000 may be eligible for an exemption if they can satisfy the ministry that their lifetime disability related costs will exceed $200,000.

For more information on the impact trust assets can have on beneficiaries with disabilities claiming assistance see: http://www.eia.gov.bc.ca/publicat/bcea/trusts.htm#dat

The material contained in this article/video/blog is for your general information only and is not intended to be, nor should it be taken as legal advice.

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