A fiduciary relationship (or legal duty) is established under a Trust when an individual (grantor) transfers property to a third party (trustee) to hold and administer the property for the benefit of one or more beneficiaries. In some cases the grantor, trustee and beneficiary can all be the same person. The two basic types of trusts are "revocable trusts" and "irrevocable trusts" established during the grantor's lifetime; however, "testamentary trusts" may be established under the terms of an individual's Last Will and Testament after the pass away. Through the terms of the Trust, the grantor has the ability to control when and how and to whom distributions of income and/or principal can be made. .This can be especially useful to ensure that the Trust assets are protected from the creditors and/or divorcing spouses of the beneficiaries. In most cases it is beneficial to draft the Trust to ensure that the beneficiaries' interests are completely discretionary. Through "discretionary trusts" income and/or principal may be dispersed by the Trustee, at the Trustee's full and absolute discretion, to or for the benefit of one or more beneficiaries for their health, education, support, and maintenance; or may be based on a best-interest standard if it is an independent trustee.
It is designed this way to ensure the beneficiary is not treated as an owner of the assets held within his trust, but instead is treated as a having a beneficial interest in the trust, and the trustee has a discretion to withhold disbursements if unforeseen circumstances arise whereby the beneficiary is no longer appropriate for receiving said disbursements. This type of trust allows for the grantor to enable the trustee to discern (with pre-established specificities contained in the language of said trust) whether or not the beneficiary is entitled to the disbursements of the trust. The language may specify that immoral lifestyle choices, divorce, habitual over-spending, deadlines for certain goals not being met, among other things, may cease, or defer the benefits of the beneficiary, indefinitely, or until certain appropriate, predetermined activities, choices, and/or lifestyles are resumed.