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Should you make an incentive trust part of your estate plan?

On Behalf of | Oct 14, 2022 | Estate Planning |

Do you know what you want out of your estate plan? If you don’t, it’s OK. A lot of people don’t have a firm grasp on the goals of their estate planning other than to leave their assets to their loved ones.

But your estate plan doesn’t have to be so simplistic. Instead, you may want to consider utilizing your assets to motivate your loved ones to act in a certain way.

If that sounds enticing to you, then you might want to consider whether an incentive trust is right for you and your estate plan.

How does an incentive trust work?

An incentive trust is an estate planning tool through which one places assets into a trust and allows for periodic payments to be made to a named beneficiary. However, the bulk of the trust’s assets will only be released once the beneficiary adheres to an identified condition.

For example, your trust may pay your son $1,000 a month with the remainder of the trust being released once he graduates from college.

Conditions on an incentive trust

The type of condition that you place on the release of the trust’s assets is entirely up to you, too. This gives you a tremendous amount of flexibility and allows you to be creative in how you motivate your loved ones to act.

If you’re worried about a loved one squandering away wealth, then you might want to condition the release of trust assets on that individual holding a full-time job for a specified period of time so that he or she can generate his or her own wealth. You could also condition the release of assets on any of the following events:

  • Marriage
  • Birth of a child
  • Graduation from school
  • Completing a treatment program
  • Providing so many hours of community service
  • Good grades in school

Remember, too, that you can customize this trust to suit your needs. So, if you don’t want all of the trust’s assets to be released when the triggering condition is met, then you may want to put a provision in the trust document that merely allows for a greater distribution from the trust so long as the condition is met.

Are there risks associated with an incentive trust?

There aren’t necessarily any risks associated with these estate planning vehicles. However, you do want to make sure that you’re thoroughly thinking through the conditions that you’re placing on the trust.

For example, if you allow for a greater distribution of trust assets upon your loved one getting straight A’s in college, then you might end up in a situation where your loved one develops a learning disability or is injured such that he or she is less likely to achieve that goal.

You certainly don’t want to disqualify your loved one from attaining the goals that you’ve set for him or her, which is why you might want to give yourself a little more leeway when creating the condition for your trust.

Diligently create the estate plan that’s right for you

You have a lot of estate planning options at your disposal. Figuring out which ones to use can be difficult, especially if you’re unfamiliar with the estate planning process. Fortunately, this isn’t something that you have to do on your own. Instead, you can work side-by-side with an attorney who is well-versed in dealing with these sorts of matters.