Trusts have a privileged location among asset protection structures.

You can use foundations, LLCs, or captive insurances, but trusts were the first asset protection structure and the one that is most used around the world.

In Mundo, we can offer you two of what we think are the best trust jurisdictions on the planet: Nevis and Belize. We can also offer the Madeira trusts, which are an excellent choice as you can pick the trust jurisdiction that will regulate your trust while registering it in an EU jurisdiction.

Read our trust articles here 

However, we know that it is somewhat difficult for someone who does not live in a common-law jurisdiction to understand this structure. Today, we bring you an educational article that will explain to you what discretionary trusts are.

Discretionary trust

Sometimes just giving assets to a beneficiary is not the best way to distribute your assets for them. Maybe you don’t trust their financial capacities, or they may be a loved one with special needs who cannot manage their own assets.

Whatever is the case, a discretionary trust is a sound estate planning option. This type of trust is set up to benefit one or many beneficiaries with the particularity that the trustee has full authority to decide how funds are distributed.

The beneficiaries of such a trust do not have any rights whatsoever to the funds, and they are not considered to be part of their estate. Thus, they cannot be claimed by creditors or spouses unless they have been distributed to the beneficiary.

A discretionary trust allows you to provide guidance to the trustee about when to make the distributions. For example, you can state monthly maintenance payments or education payments, or for health. Also, a trustee can be indicated to distribute funds when a beneficiary completes a milestone, such as college graduation or getting married.

What are the tax implications of a discretionary trust?

From a tax perspective, there are two types of trusts: grantor and non-grantor.

A non-grantor trust is a trust that is not taxed to the grantor, which is the person that creates and provides the assets to the trust. However, this is only for income tax purposes, not necessarily for estate or gift tax.

Thus, the discretionary trust generally falls under the non-grantor trust classification because the grantor loses control of its assets, even his or her right to determine how those assets will be distributed. The grantor can write down a letter of wishes with instructions, which the trustee follows, but is not strictly and legally bound to do so. However, the trustee is generally someone the settlor trusts (a family lawyer, for example), or a professional service provider. The settlor can also appoint a protector that oversees the actions of the trustee.

In a grantor trust the grantor retains the power to revoke, substitute, distribute assets and add beneficiaries, which means the assets under the trust can be taken as a part of its assets, and, hence, can be taxed. In some countries, like the US, they can be taxed at higher rates than the corporate tax.

What can you do?

As we work with the best trust experts in the best trust jurisdictions on the planet, taxes won’t be an issue. In Nevis and Belize trusts are entirely tax-free structures that will keep your assets and your legacy safe. That means you won’t have to be bothered by complex grantor and non-grantor rules and tax rules that will reduce the totality of your estate.

All you need to do is contact us right now, and we will find a tailor-made solution to protect your legacy.

Contact us now