Estate Planning & Incentive Trusts

Estate Planning & Incentive Trusts

Estate Planning & Incentive Trusts

When you take stock of your assets and recognize the fact that your estate is going to have a considerable impact on the lives of your heirs, it is important to consider the personalities and proclivities of the each individual involved. There will probably be some family members who are ready to receive their inheritances directly with no strings attached at all, but you may have some nagging doubts about others. Younger people who are not established in their own right may lose their way if they find that they don't really have to gain an education and embark on a career path for financial reasons. And others may have personal problems or difficulty handling money, and these types of things can give you reason to take pause.

Incentive trusts are estate planning tools that you might want to consider to address these concerns. With these vehicles you set up the trust to make distributions based on certain stipulations that are intended to guide the beneficiary in the right direction. For example, many people create trusts that provide academic incentives. You may allow for regular distributions as long as the beneficiary remains in school, and provide for a lump sum distribution upon graduation. You can take that a step further and foster an ongoing work ethic by having the trust match each dollar that is earned by the beneficiary in his or her own right.

In addition to encouraging positive choices, incentive trusts can be used to discourage destructive behavior. For example, you could tie distributions from the trust to completion of a substance abuse treatment program, and add provisions for ongoing distributions contingent upon staying free of the addiction or addictions.

These are just a few common examples of how incentive trusts are used, but you can actually create such a trust with any stipulations you choose to as long as they are not illegal. There are obvious reasons to tread lightly and proceed with caution because you don't want your gifts to be met with resentment, but if you use them wisely incentive trusts can be a very useful inheritance planning solution.

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