Is an Incentive Trust Right for Your Estate Plan?

 Posted on November 06, 2018 in Estate Planning

A trust is a fiduciary relationship in which an individual or entity called a trustee controls certain assets for the creator of the trust, called a grantor. An incentive trust arrangement is different from other trusts in that the trustee must follow specific rules set by the grantor regarding when the trust’s beneficiaries can receive funds from the trust. This legally-binding arrangement functions as a conditional inheritance, allowing grantors to encourage their intended beneficiaries to meet certain goals before being awarded their inheritance.

How Can an Incentive Trust Benefit My Family and Me?

Many individuals struggle to manage their finances responsibly. This is often especially true of individuals who acquire a large sum of money quickly, which can become a concerning dilemma for those who wish to leave money and other assets to heirs. For example, a grandparent may wish to leave money to his grandchildren but worry that they will squander their education in favor of frivolous spending. An incentive trust would allow this grandparent to ensure that his grandchildren only receive their inheritance, for example, after completing a higher education program.

On the other hand, an incentive trust could also be constructed to discourage certain activities or behavior. For example, an individual could design an incentive trust that requires beneficiaries to pass a drug test in order to collect their inheritance. An incentive trust like this will cease disbursements to a beneficiary if he or she tests positive for illegal drug use. There is almost no limit to the requirements or incentives that can be included in an incentive trust, as long as the stipulations are not illegal.

Pros and Cons of Using an Incentive Trust

There are numerous benefits to using an incentive trust, including better control over how assets are distributed after a person passes away. Incentive trusts can help motivate beneficiaries to meet certain goals and reward them for their efforts. They can also help prevent beneficiaries from using inheritance awards as an excuse to give up on their own dreams and aspirations. It is important that incentive trusts be made with care and attention to detail. Some incentive trusts have bred resentment in families due to requirements which are considered unattainable or unfair to beneficiaries.

Let Us Help

If you think an incentive trust may be right for your family, or you have other estate planning needs, reach out to the professional Lombard estate planning attorneys at A. Traub & Associates. Call 630-426-0196 to schedule your initial consultation today.

Sources:

http://www.wealthmanagement.com/estate-planning/ultimate-dead-hand-control-incentive-trusts-part-i

http://www.investopedia.com/articles/pf/06/incentivetrust.asp