Incentive Trusts

Incentive trusts are important to consider with estate planning.

One of the best tools in estate planning for encouraging positive behavior is through an “incentive trust.”  An Incentive trust is a trust like any other, which rewards the beneficiaries when they meet certain objectives or goals in their lives.

Many of us would like to think that our children and grandchildren will become responsible adults and use their inheritance for great things.  However, as many of our clients know, it can often be hard to motivate younger generations when they have become accustomed to a certain lifestyle.  The theory behind incentive trusts is that parents can help guide their loved ones by offering financial incentives to meet certain goals.  For instance, an incentive trust could award a child $200,000 for graduating college.  In many cases, our clients match the income that their children earn.  This provides an incentive to be a higher wage earner. We believe incentive trusts, when used in a sensitive and careful manner, can be great tools for using wealth to help nudge children and grandchildren in the right direction.

An incentive trust is a legal entity that holds and manages funds usually for the benefit of another person known as the beneficiary.  The trust is managed by a trustee, who is in charge or giving the funds to the beneficiary at his discretion or when certain objectives have been met.

There are many incentives that can be placed within a trust, which include education incentives, moral incentives, and incentives designed to encourage beneficiaries to have productive careers.  Education incentives are very popular incentives to include in these trusts.  Funds can be given to beneficiaries for graduating college, high school, or any other type of school imaginable.  These conditions can even be specified on the beneficiary receiving a certain grade point average.  You could even specify exactly what school you want this person to attend.

The trust maker can also include many moral objectives in a trust.  For instance, you could require a beneficiary to pass a drug test before trust funds are administered.  An incentive trust can also be used to encourage loved ones to marry and even to get married to a spouse of a certain religious faith.  Settlors may also encourage beneficiaries to engage in charitable activities, so money could be awarded for spending a certain amount of time working for a family foundation.

Many settlors who create incentive trusts also want to ensure that their children work hard.  This can be done in a number of creative ways.  A trust could reward a productive child by paying out a dollar for every dollar the child earns on his or her own.  The trust can direct the trustee to examine the beneficiary’s financial documents, such as the W-2, to make sure this person is working and qualifies for the disbursement.  An incentive trust may also award beneficiaries for taking on certain objectives, like if the child takes of the family business or farm.

An incentive trust can be drafted to meet almost every need and wish imaginable.  There are certain limits to what a trust can incentivize, however as you can imagine these limits are pretty rare.  If you are interested in setting up an incentive trust for a loved one please contact our Jacksonville estate planning attorneys  today at 904-685-1200.

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