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Estate planning advice: Trustee discretion

When Texas residents are planning their estate, many choose to create a trust in order to hold wealth intended for one or more beneficiaries. In doing so, they must also appoint a trustee, who is the individual responsible for administering the trust according to the wishes of the deceased. Doing so, however, can be a challenging aspect of one's estate planning, as there are a variety of choices available as to what level of discretion can be granted.

At a basic level, a trust is considered to be "simple" when the trustee is authorized to give income from the trust directly to the beneficiary. If the trustee is authorized to use his or her discretion in whether to give that income or allow it to accumulate, the trust is considered to be "complex." In addition, a trustee can be given the discretion to give principal from the trust to a beneficiary.

In order to distribute principal, the monies must usually be intended to pay for "health, education, maintenance and support." It is also possible to expand the trustee's level of discretion to allow for principal to be granted for the purposes of "general welfare." In general, allowing a trustee to use his or her discretion in distributing principal will not alter how the IRS treats the estate or gift tax ramifications.

Another matter that can complicate Texas estate planning include scenarios in which the trustee is also a beneficiary. The tax ramifications for this arrangement will differ from those mentioned above. However, there are a number of strategies that can be implemented for the purposes of minimizing the tax ramifications of various options. At the end of the day, there is a solution available for every conceivable trust arrangement.

Source: WealthManagement.com, Estate Planning Shades of Grey, Joseph C. Mahon, Dec. 11, 2013

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