There are many ways to use a trust as part of an estate plan. This gives the grantor a chance to set certain goals for the beneficiary. The trustee is then in charge of deciding if these goals have been met and making the appropriate distribution.
Anyone can create an incentive trust, but they often happen when wealthy families are going to be passing a major inheritance on to younger beneficiaries. They don’t want these beneficiaries to abandon their careers or put their personal aspirations aside just because they don’t need to earn money. So the incentive trust can help them accomplish goals and live the life that their older relatives envisioned for them.
Staying dedicated in a career
For example, an incentive trust could be directly tied to the person’s earnings in their career. If they just work part-time and earn $20,000 during the year, then they can only take an annual withdrawal of $20,000 out of the incentive trust. But if they work hard, climb the corporate ladder, and land a position that pays $150,000 a year, then they can take an equal distribution of $150,000 out of the trust. This way, they get their inheritance, but they do have to keep working.
The trust could also be used to incentivize very specific goals, such as graduating from a four-year university. A certain portion of the trust may be given out as a reward. Upon graduation, the beneficiary receives $500,000 to help them at the start of their career, for example.
As you can see, trusts provide a lot of unique opportunities, but they can be fairly complex and specific. It’s important to understand exactly what legal steps to take.