Definition
The term discretionary beneficiary refers to a named party in a trust that is not guaranteed a distribution of assets. Trustees have the right to choose whether or not a discretionary beneficiary is provided a distribution from the trust.
Explanation
A trustee has a fiduciary responsibility to the trustor to distribute benefits from a trust according to their instructions. Establishing a discretionary beneficiary is not the norm. When named, discretionary beneficiaries are typically individuals that cannot be relied upon to use good judgement in financial matters. For example, the beneficiary may have poor spending habits that need to be monitored by the trustee. A beneficiary that is a minor is another frequently-cited example of the prudent use of discretion.
Once established, the trustee also has a fiduciary responsibility to the beneficiary. In this example, to ensure the benefits of the trust are used cautiously. Within this agreement, the beneficiary can no longer compel the trustee to distribute funds from the trust; that decision resides with the trustee.
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