Trusts and Estates
Ca. Trs. & Estates Quarterly Volume 12, Issue 1, Spring 2006
- RECENT DEVELOPMENTS IN OWNERSHIP RULES: WHAT T & E PRACTITIONERS SHOULD KNOW
- Beyond Traditional Estate Planning: Addressing the Personal Impact of Inherited Wealth
- California Trusts and Estates Quarterly Rumors of Their Death Are Greatly Exaggerated: the Pre-death Will Contest and Other Strategies In Conservatorship Litigation
- Putting An End To the Shirtsleeves-to-shirtsleeves Phenomenon: a New Wealth Management Paradigm
- HELPING THE INCAPACITATED CLIENT: A RESPONSE TO WARREN SINSHEIMER'S "IN THIS LAWYER'S OPINION"
- Discretionary Distributions: To Pay or Not To Pay?
DISCRETIONARY DISTRIBUTIONS: TO PAY OR NOT TO PAY?
By Kathleen A. Knight* and James P. Bessolo**
A discretionary distribution is the ability to distribute income and/or principal as authorized in a trust instrument. The trustee’s authority to make discretionary distributions embraces many of the basic fiduciary duties, including the following: (i) the duty of loyalty; (ii) the duty to avoid conflicts of interest; (iii) the duty to administer the trust in accordance with its terms; (iv) the duty to deal impartially with the beneficiaries; (v) the duty to seek approval from co-trustee(s) if required; (vi) the duty to exercise reasonable care and caution; and (vii) the duty not to delegate administrative functions except in accordance with applicable law.
Trustees are given flexibility in making distributions for a variety of tax and non-tax reasons, including the following: (i) protection of minors; (ii) protection of spendthrifts; (iii) tax deferral; (iv) protection from government invasion; (v) protection from creditors; and (vi) possible change of circumstances.