Legal Definitions - non-discretionary trust

A non-discretionary trust is a type of trust where the trustee, the person or entity managing the trust's assets, has very specific and strict instructions on how to manage and distribute those assets. Unlike a discretionary trust where the trustee has significant freedom to make decisions based on their judgment, in a non-discretionary trust, the trustee's actions are entirely predetermined by the trust document. They have no personal choice or decision-making power regarding key aspects like investment choices, distribution schedules, or beneficiary payments; they must simply follow the detailed directives laid out by the person who created the trust.

• Example 1: Fixed Investment Strategy for Education

  A grandparent establishes a trust for their grandchild's college education. The trust document explicitly states that the trustee must invest 60% of the funds in a specific government bond fund and 40% in a particular broad market index fund. It further mandates that tuition payments be made directly to the university each semester, up to a pre-defined maximum amount, and that any remaining funds be distributed to the grandchild upon successful graduation. The trustee is forbidden from altering these investment allocations or changing the payment schedule or amounts.

  This illustrates a non-discretionary trust because the trustee has no flexibility in choosing investments or deciding when and how much to pay the beneficiary. Their role is simply to execute the precise instructions regarding investment allocation and distribution timing and amounts, without applying their own judgment or adapting to market changes or the grandchild's evolving needs.

• Example 2: Specific Management of a Rental Property

  A property owner places a commercial building into a trust. The trust document specifies that the trustee must always lease the building to businesses operating within the healthcare sector, at a fixed annual rental rate that is adjusted only by a pre-set inflation index. The trustee is instructed to use all rental income solely for the building's maintenance, property taxes, and insurance, and to never sell the property or allow it to be used for any other purpose.

  This demonstrates a non-discretionary trust because the trustee cannot decide who to rent to, what rent to charge (beyond the indexed adjustment), or how to allocate the income beyond the specified expenses. Their actions are entirely dictated by the trust's terms, removing any personal discretion in managing the property or its finances.

• Example 3: Pre-defined Payments for a Beneficiary's Care

  A trust is set up for an adult child with specific medical needs. The trust document directs the trustee to pay a fixed amount of $3,500 directly to the child's long-term care facility on the first of each month, and to reimburse up to $750 per month for approved medical supplies upon submission of valid receipts. The trustee is explicitly forbidden from making any other payments, increasing these amounts, or making judgments about additional needs, even if the child's circumstances change.

  This is a non-discretionary trust because the trustee's role in distributing funds is strictly defined. They cannot exercise judgment to provide more money if the child's needs increase, nor can they decide to pay for other expenses not explicitly listed. Their actions are limited to fulfilling the exact payment instructions outlined in the trust document.