Do you need an incentive trust in your estate plan?

On Behalf of | Sep 22, 2022 | Estate Planning |

It’s normal to worry about how your estate is going to be used once you’re gone. After all, we’ve all heard stories about squandered wealth and mismanaged inheritances. But don’t let the stress of estate planning deter you from taking the action necessary to ensure that your loved ones are financially supported while your estate remains protected.

What are your options?

The great thing about estate planning is that you can customize the process to suit your needs. The options are nearly limitless, too, which means that you can develop an estate plan that is right for you and your situation.

If you have fears about how an inheritance will affect your loved ones and their motivation to achieve great things in life, then, you’ll want to be diligent in determining how you can create an estate plan that achieves your goals. One option that you may be able to use is the incentive trust.

What is an incentive trust?

An incentive trust is a trust that makes periodic payments to a named beneficiary but withholds the principal amount until an identified condition is met. This condition is what you can use to motivate your loved one to act in a certain way or to achieve an identified goal. Some examples of triggering conditions include:

  • Graduating from college
  • Holding a full-time job for a specified period of time
  • Getting married
  • Having a child
  • Completing substance abuse treatment

Again, you can get creative here to make sure that you’re steering your loved one’s behavior in a way that you think is appropriate.

Drafting the language in an incentive trust

Although the idea of an incentive trust may seem rather simple, you have to make sure that you draft your legal documents with clarity. If you don’t, then you may end up being more restrictive than you intended, or you might make it too easy for the condition to be satisfied. So, make sure that you’re being very clear and very specific in the conditions that you place on the trust and its assets.

Also, as you’re drafting your incentive trust, you’ll want to think about what should happen to the trust’s assets if your named beneficiary fails to meet the condition but for a justifiable reason. For example, what if your loved one suddenly and unexpectedly becomes disabled and therefore can’t hold a full-time job for a specified period? You’ll need to think through how these matters should be handled before you finalize your trust.

What if the identified condition isn’t met?

This is something else that you’ll need to take into account and plan for in your trust documents. If your named beneficiary doesn’t meet the condition that you’ve laid out for him or her, then you’ll need to specify what will happen to the trust’s assets. You might decide to redirect the assets to charities, or you may have the assets distributed to other beneficiaries. It’s really up to you.

Creating the estate plan that is right for you and your family

There’s a lot that can go into estate planning, but for good reason. You want to eliminate uncertainty and ensure that you’re loved ones and those you care about are supported as you see fit. Therefore, thorough estate planning is important. So, if you’d like to learn more about what estate planning can do for you, then you may want to discuss your circumstances with a legal team that you think will advise you appropriately.