About the Course
Introduction
This CLE course will provide trust planning counsel and fiduciary advisers with a thorough, practical guide to making discretionary distributions of principal or income from a discretionary trust. The panel will discuss the liability risks for trustees making these distributions, review the appropriate factors, considerations, and standards for evaluating discretionary distributions, and outline potential challenges from creditors or other beneficiaries to such distributions.
Description
Determining whether and when to make a discretionary distribution of trust assets presents significant challenges for trustees and estate planning counsel in drafting trusts. Trust counsel must fully understand the impact and risks to a fiduciary in exercising discretion to make distributions, particularly of the trust principal, when structuring distribution provisions in discretionary trusts.
A discretionary trust is a complex trust that allows a trustee discretion over income or assets distributed to defined beneficiaries. Generally, trust documents specify standards for discretionary distributions. The most common measure is the health, education, maintenance, and support (HEMS) standard, defined in Treas. Reg. 20.2041-1(c)(1) as an "ascertainable standard."
Trust drafters may include other "unascertainable" standards to guide fiduciaries. Absent careful drafting and thoughtful trustee selection, the use of an unascertainable standard may trigger a tax recognition event such as a general power of appointment.
While courts generally give wide latitude to a trustee's exercise of discretion to make distributions, beneficiary challenges to distributions have succeeded in cases where the court finds flaws in the discretionary provisions or the trustee's exercise of distribution powers. Counsel must be fully aware of permissible standards to deter beneficiary disputes and avoid adverse tax and accounting consequences.
Listen as our experienced panel provides a practical guide to structuring distribution provisions in discretionary trusts, outlines liability risks involved, discusses appropriate factors, considerations, and standards, and examines potential creditor or other beneficiary claims arising from a trustee's decision to grant or deny a discretionary distribution request.
Presented By
Ms. Balducci is a partner in the Private Clients Department. She focuses her practice on estate and tax planning, advising clients of ultra-high net worth to those of modest wealth. Ms. Balducci routinely represents fiduciaries in Surrogate’s Court proceedings and advises individuals and institutions with respect to the estate administration process. She counsels clients with regard to the New York probate system and federal and state tax returns.
Mr. Johnson is widely recognized as one of the go-to fiduciary litigators in Texas. His practice focuses on trust, estate, and closely held business disputes. A frequent writer and speaker, Mr. Johnson is known around the state as a thought leader in the fiduciary area. His award-winning blog, The Fiduciary Litigator, features recent case law, legislative changes, and other precedent that impacts fiduciaries in Texas. Mr. Johnson received the JD Supra 2020 Readers’ Choice Award for Wealth Management, which was his third year in a row for such an award. He was also named a “Go-To Thought Leader” in Fiduciary Litigation by the National Law Review in 2020. Mr. Johnson's experience in trust and estate disputes includes will contests, elder abuse, mental competency, undue influence, trust modification/reformation/clarification, breach of fiduciary duty and related claims. He also handles matters involving trust decanting, trust severance and joinder, account disputes, power of attorney disputes, suits for judicial instruction and discharges, heirship proceedings, suits to remove a fiduciary, and accountings. Additionally, Mr. Johnson has a transactional practice for trust departments in providing legal opinions on the construction of trust documents, documenting release and consent agreements, resignations, successor appointments, modification of trusts, trust mergers, trust severances, etc.
Mr. McNary has been practicing law for more than 30 years. Throughout most of his career he has limited his practice to the areas of estate planning, business succession planning, probate, and trust administration. That focus has allowed Mr. McNary to intensively study those areas of the law. He has taught many courses and written many papers for fellow lawyers and has published articles on estate planning, probate, and trust administration.
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This 90-minute webinar is eligible in most states for 1.5 CLE credits.
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Date + Time
- event
Wednesday, December 16, 2026
- schedule
1:00 PM ET/10:00 AM PT
I. Discretionary trusts defined
II. HEMS standard allowable provisions
A. Health
B. Education
C. Maintenance
D. Support
III. Unascertainable standards
IV. Risks in structuring discretionary distribution provisions
V. Areas of successful beneficiary challenges
The panel will review these and other relevant topics:
- Unascertainable standards that present liability or tax risks to fiduciaries
- Types of discretionary distribution provisions that courts have ruled defective
- Elements of HEMS standards, IRC 2014, and governing regulations
- Risks in distributing assets from the principal or income of a discretionary trust
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