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Getting your way with an incentive trust

Over your life, you worked hard to build wealth and gather assets. You might not want to leave them behind when you pass simply so they can go to waste. If you know that your heirs aren't great with money or you think they are shying away from success, you might create an incentive trust to encourage them to do something desirable.

For example, if you are worried about whether your child will ever finish college, you can create a trust and make him or her the beneficiary. Instead of tying the payout from the trust to an age, you can tie it to college graduation. You might even be able to set a time limit: If your child graduates college by the time he or she is 27 years old, the assets in the trust go to them. Otherwise, the assets might go to a favorite charity or other heirs.

Don't jump into an incentive trust without carefully considering all the angles, though. An experienced estate lawyer can help you plan for all the eventualities and avoid costly mistakes. For example, you might want to ensure that your children are gainfully employed in the future, but if you make that part of your incentive trust, what happens if one of them becomes disabled and is unable to work?

You should also understand the emotional consequences of such trusts. Your heirs might see it as you holding their inheritance hostage. Talking to them ahead of time and explaining your reasons can help alleviate such feelings, and incorporating these trusts as only a portion of your estate administration can also help.

Source: Press Connects, "Incentive trusts can motivate your heirs," Jim Miller, Nov. 04, 2016

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Law Offices of Nancy M. Rice
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