What characterizes a discretionary trust?

A discretionary trust is characterized by the trustee's authority to determine both the timing and amount of distributions to beneficiaries. This means that the trustee has the flexibility to assess the needs and circumstances of the beneficiaries and make decisions about how much money or assets to distribute, and when to do so, based on those assessments. This setup allows the trustee to exercise discretion in managing the trust's assets, tailoring distributions to the individual needs of the beneficiaries, which can be particularly useful in situations where their circumstances may change over time.

In contrast, a fixed distribution of assets, as described in one of the options, means that beneficiaries receive predetermined amounts at set times; this is not a feature of discretionary trusts, which operate on more fluid terms. A trust that solely exists for charitable purposes does not inherently define a discretionary trust, as such trusts can be established for various intentions beyond just charitable aims. Lastly, automatically distributing assets upon the death of the trustor reflects a testamentary trust rather than a discretionary one, which may require an ongoing decision-making process by the trustee regarding distributions. Thus, the defining characteristic of a discretionary trust lies primarily in the trustee's ability to manage distributions based on the trust's terms and the beneficiaries' needs.