Guys,
Can anyone clarify this concept, please? Also, what’s the difference to a fixed trust? In the fixed trust description, they even give an example that it would be useful in the case of a minor child, so that distributions could only start when the kid reaches 21 yrs old.
Also, since the fixed trust has pre-determined distributions, is it true to say that in this case claims against the beneficiaries could reach the trust assets?
Anyone able to clarify this?
It says specifically -> The trust is said to be fixed because the terms of the distributions are pre-determined in the trust documentation.
It is that the terms of the distributions are FIXED - specified in advance of trust creation.
FIXED:
“For example, Maria Valez, a first generation wealth owner, may wish to make a large inter vivos transfer to her son, Conner, who is too young to manage the assets himself. Valez could fund a trust that directs the trustee to hold the assets until Conner’s 21st birthday and begin making annual distributions of a specific amount over 10 years, at which time any remaining assets will be distributed to Conner.”
DISCRETIONARY:
if the trust document enabled the trustee to determine whether and how much to distribute based on Conner’s general welfare and in the sole and uncontrolled discretion of the trustee, the trust would be called a discretionary trust. The settlor can make her wishes known to the trustee through language in the trust document and/or through a non-binding letter of wishes.
So in a FIXED trust - the trust distribution terms cannot be changed at the discretion of the Trustee.
SPENDTHRIFT
common motivation for using a trust structure is to make resources available to a beneficiary without yielding complete control of those resources to them. For exam- ple, spendthrift trusts can be used to provide resources to beneficiaries who may be unable or unwilling to manage the assets themselves, perhaps because they are young, immature, or disabled. Or perhaps the settlor wishes assets to be used for particular purposes. In any case, the trust relationship can permit a settlor to transfer assets without the expense or publicity associated with probate, yet still retain control of those assets.
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Asset Protection
In general, creditors are unable to reach assets that an individual does not own. Just as an irrevocable trust can protect assets from claims against the settlor, as outlined above, discretionary trusts can protect assets from claims against the beneficiaries.
Under a discretionary trust, the beneficiaries have no legal right to income generated by the trust or to the assets in the trust itself. Therefore, the creditors of the benefi- ciaries cannot reach the trust assets. In the example on the previous page, suppose Maria Valez is concerned that Conner’s new wife may divorce him and lay a claim on his trust assets in a divorce settlement. If the trust to which Conner is a beneficiary is discretionary, then his wife would be unable to lay claim to them because it is within the trustee’s power to avoid making distributions to Conner. It is important to note that these structures must generally be established in advance of a claim, or even a pending claim, to effectively protect assets. Trusts may also be used in circumstances where forced heirship laws permit the use of lifetime gifts and trusts to avoid the strict application of forced heirship rule. In fact, many countries specifically prohibit the application of forced heirship rules to trusts, making trusts an especially useful tool in this regard.
I do not believe they say too much about Spendthrift Trusts other than the one reference I found … *Under the Control section*
Thanks mate, helped a lot.