When planning for the long-term financial security of a loved one with disabilities, most families are familiar with special needs trusts (SNTs). However, there’s another option worth considering: the discretionary support trust. Unlike a traditional SNT, which is designed primarily to preserve eligibility for government benefits, a discretionary support trust gives trustees more flexibility in how funds are managed and distributed. Thinking beyond a standard special needs trust can open doors to customized solutions that fit your family’s unique circumstances.
If you are exploring estate planning options for a loved one with special needs, The Matus Law Group can help you evaluate which option is right for your situation. Our experienced New Jersey special needs trust attorneys understand both trust structures and can guide you through every step of the process. We can help you manage the challenges of raising a child with special needs. Contact us today at (732) 785-4453 to learn more about how a special needs trust can secure your loved one’s future while preserving their access to essential benefits.
Discretionary Trusts Explained
With a discretionary trust, the trustee has the freedom to manage the trust at their own discretion, including selecting beneficiaries and determining when to release funds. While the trustee may use their judgment to choose beneficiaries, they must still follow the settlor’s wishes in managing the trust.
In addition to this, a discretionary trust can safeguard family assets from being divided in divorce settlements. The trustee can modify the beneficiary selection and asset distribution as needed to shield the trust’s assets. Although a trust cannot be utilized to conceal assets from creditors, establishing one can offer protection for beneficiaries. Furthermore, a discretionary trust can assist young beneficiaries in managing their funds, as the trustee has the authority to control and safeguard the funds if the beneficiary is unable to do so.
An experienced New Jersey discretionary trust lawyer can help ensure that the trust is set up correctly and that the trustee follows the legal guidelines for managing the trust. At The Matus Law Group, our skilled NJ discretionary support attorneys can provide ongoing advice and assistance to ensure that the trust remains in compliance with the law and that the beneficiaries receive the maximum benefit from the trust over time. Call us at (732) 785-4453 to learn more.
Discretionary Support Trust
A discretionary support trust, for instance, still allows for a trustee to disperse supplemental income to your chosen beneficiaries. But this type of trust gives the trustee an additional level of flexibility in disseminating funds to your child.
It is important to note that a beneficiary’s access to money is either mandatory or discretionary for trusts. When a trust is mandatory, the beneficiary can request money from the trustee, and the trustee is required to issue those funds. With a discretionary trust, the trustee has the choice of whether to give the funds.
That is particularly important when it comes to some people who possess special needs. The trustee can continue to look out for their best interests. Choosing the right trustee to assist with your special needs child is of vital importance.
New Jersey Special Needs Trust Attorney
Christine Matus
Christine Matus has been a dedicated legal advocate in New Jersey since 1995, focusing on estate planning and special needs law. A graduate of Douglass College at Rutgers University and Touro College Law Center, Ms. Matus brings over two decades of experience to her role as founder of The Matus Law Group. Her passion for helping families plan for the future is reflected in her extensive public speaking on elder law and special needs planning, as well as her published work in legal and community publications.
Ms. Matus is deeply engaged in public service and community leadership, having served on numerous boards, including the Ocean County Bar Association, 21 Plus, MOCEANS, and the Ocean County YMCA. As a mediator, ethics board member, and volunteer for local nonprofits, she combines her legal knowledge with a strong commitment to giving back, especially to the Filipino-American community in Ocean County.
Setting Up and Funding a Discretionary Support Trust
Creating a discretionary support trust in New Jersey begins with a clear plan. First, a grantor works with an attorney to draft the trust document. This legal instrument sets the terms, names the trustee, and defines who the beneficiaries are. The trust language gives the trustee the authority to decide how and when distributions are made, usually based on the needs of the beneficiaries. This flexibility allows the trustee to provide financial support without giving the beneficiaries direct control over the trust assets.
Once the trust is established, it must be funded. Funding simply means transferring assets into the trust’s name. This can include cash, investments, real estate, or even business interests. The grantor may transfer property during their lifetime or arrange for assets to flow into the trust through their will or other estate planning tools.
A trustee’s role is critical once funding is in place. They are responsible for managing the assets, making investment decisions, and distributing support according to the terms of the trust. Because the trustee has discretion, they can adapt distributions to meet the beneficiaries’ needs over time, whether that involves education costs, medical expenses, or general living support.
Setting up and funding this type of trust requires careful thought about family goals, the right trustee, and the types of assets best suited for long-term management.
Benefits
Recall how a special needs trust could be used in conjunction with someone receiving benefits such as SSI or Medicaid. The trustee needs to be diligent because there are such things as countable resources. People who receive SSI must have $2000 or less of countable resources.
If the beneficiary (special needs child) has more than $2000 in their bank account (or in cash) or spends more than that on meals or property taxes, for example, they could no longer be eligible for SSI.
If the special needs child is not receiving SSI, the trustee is not beholden to that $2000 limit. This frees up the trustee to pay for rent, and mortgage, and even make investments that exceed $2000.
When you build your estate plan and utilize a discretionary trust, you can still identify which things the trustee has to pay for. For example, you could set a minimum allowance that your beneficiary can receive to support their living expenses.
What Are the Downsides of a Discretionary Trust?
Discretionary trusts, while offering flexibility and potential tax benefits, come with several significant drawbacks that need careful consideration. Understanding these downsides is crucial for anyone considering setting one up.
Complex Management: Trusts are inherently complex structures. If professional trustees are not appointed, lay trustees or a non-professional trustee, must navigate intricate trust and tax laws and manage the trust’s assets. This responsibility includes making decisions on how the trust’s benefits are distributed among beneficiaries. The complexity of this process can be overwhelming for those without legal or financial experience.
Potential Beneficiary Discontent: Not all potential beneficiaries are guaranteed to benefit from a discretionary trust. Since the distribution of benefits is left to the trustees’ discretion, some intended beneficiaries may receive less than expected or nothing at all. This situation can lead to feelings of grievance and discontent among those who feel left out or unfairly treated.
Trust and Control Issues: A significant amount of trust is placed in the trustees to act in accordance with the settlor’s wishes. However, trustees have the power to disregard these wishes, leading to a potential loss of control for the settlor. The settlor must have complete confidence in the trustees’ judgment and integrity.
Costly to Maintain: Establishing and maintaining a trust can be expensive. Professional trustee services, legal fees, and ongoing management costs can add up, making trusts a costly option. These expenses can sometimes outweigh the financial benefits that the trust aims to provide.
Tax Implications: While discretionary trusts can reduce the settlor’s tax burden, they can impose other tax obligations on the trustees and beneficiaries. The tax landscape for trusts is complex and can result in unexpected liabilities, making it crucial to seek professional advice.
When considering setting up a discretionary trust, it’s essential to weigh the potential drawbacks carefully. Understanding both the advantages and disadvantages will help you determine if a discretionary trust aligns with your financial and familial goals. For more detailed insights and guidance, consider consulting with a New Jersey estate planning attorney from The Matus Law Group today.
| Downsides | Explanation | Example |
|---|---|---|
| Complex Management | Trustees must handle complex legal and tax rules while managing assets and distributions. | A sibling trustee struggles with tax filings and disputes. |
| Potential Beneficiary Discontent | Some beneficiaries may receive little or nothing, leading to resentment. | One child gets tuition paid while another receives nothing. |
| Trust and Control Issues | Trustees may disregard the settlor’s wishes, reducing control. | Trustees fund medical costs instead of education as requested. |
| Costly to Maintain | Trustee fees, legal expenses, and management costs can be high. | Annual costs total $10,000, reducing available funds. |
| Tax Implications | Trusts face complex rules and higher tax rates. | Income above $15,200 is taxed at the highest rate. |
Protecting Your Child’s Future with The Matus Law Group
The Matus Law Group is built around compassion and understanding for special needs families. We know how much you want your child to have a fulfilling life, and we can help you create an estate plan with that in mind. If you have any further questions or would like to speak with a professional New Jersey estate planning attorney, contact us at (732) 785-4453 to schedule a consultation.
