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.
