Discretionary beneficiaries are those named in a trust or similar document to whom distributions may be made. It is the person or persons who are entitled to the benefit of any trust arrangement. A beneficiary will normally be a natural person, but it is perfectly possible to have a company as the beneficiary of a trust, and this often happens in sophisticated commercial transaction structures.While discretionary beneficiaries may apply for distributions, it is up to the trustees to determine whether the payment will be made. In the United States, a discretionary beneficiary has no legal proprietary interest in the trust.Discretionary trusts can be discretionary in two respects. First, the trustees usually have the power to determine which beneficiaries (from within the class) will receive payments from the trust. Second, trustees can select the amount of trust property that the beneficiary receives. Although most discretionary trusts allow both types of discretion, either can be allowed on its own. It is permissible in most legal systems for a trust to have a fixed number of beneficiaries and for the trustees to have discretion as to how much each beneficiary receives, or to have a class of beneficiaries from whom they could select members, but provide that the amount to be provided is fixed. Most well-drafted trust instruments also provide for a power to add or exclude beneficiaries from the class;[3] this allows the trustees greater flexibility to deal with changes in circumstances (and, in particular, changes in the revenue laws of the applicable jurisdiction).
There is usually a reason for a person to be named a discretionary beneficiary. For example, they may be young or have bad financial habits, or they have many unpaid creditors. While the trustees still have fiduciary responsibilities to a discretionary beneficiary, it is difficult to enforce this responsibility unless there is a specific letter of intent by the grantor of the trust.