ABSTRACT
A discretionary trust is not a separate type of trust, but is a term used to describe a form of express trust when the trustee has: • a discretion to select beneficiaries; and/or • a discretion as to the amount, if any, that she awards a beneficiary.
Where a discretionary trust is exhaustive, the discretionary trustee has a duty to distribute all the income of the trust, but can decide who will receive the money and how much they will receive. In a non-exhaustive trust, the trustee is not required to distribute all the income. The trustee may also have a discretion to add or exclude some potential beneficiaries (known as ‘objects’) from the permitted class. The great advantage of discretionary trusts is that beneficiaries are not subject to taxation, as they have no present entitlement to any assets. Most superannuation funds are discretionary trusts.
