Listen to a Business English Dialogue About Nondiscretionary trust trust
Paul: Hi Elise, have you ever heard of a “nondiscretionary trust” in business and finance?
Elise: No, I haven’t. What does it mean?
Paul: A nondiscretionary trust is a type of trust where the trustee is required to follow specific instructions outlined in the trust document, leaving no room for discretion in managing the trust assets.
Elise: So, it’s like the trustee has to strictly adhere to the terms of the trust without making any judgment calls?
Paul: Exactly. Nondiscretionary trusts are often used to ensure that the grantor’s wishes are carried out precisely as outlined, especially when it comes to distributing assets to beneficiaries.
Elise: Are there any benefits to setting up a nondiscretionary trust?
Paul: Yes, one benefit is that it provides clarity and certainty regarding how the trust assets will be managed and distributed, reducing the potential for disputes or disagreements among beneficiaries.
Elise: Can you give an example of a situation where a nondiscretionary trust might be used?
Paul: Sure, let’s say a parent wants to ensure that their children receive a certain amount of money for education expenses every year. They could establish a nondiscretionary trust with specific instructions for the trustee to distribute funds annually for that purpose.
Elise: How does a nondiscretionary trust differ from a discretionary trust?
Paul: In a discretionary trust, the trustee has more flexibility and discretion in managing and distributing the trust assets, whereas in a nondiscretionary trust, they must strictly adhere to the terms outlined in the trust document.
Elise: Are there any drawbacks to using a nondiscretionary trust?
Paul: One potential drawback is that it may limit the trustee’s ability to respond to changing circumstances or unforeseen events, as they’re bound by the predetermined instructions in the trust document.
Elise: Thanks for explaining, Paul. Nondiscretionary trusts seem like an important tool for ensuring the proper management of trust assets.
Paul: You’re welcome, Elise. They can be a useful estate planning tool for individuals who want to maintain control over how their assets are distributed to beneficiaries.