If you use an incentive trust in your estate plan, it is a unique way to pass money to a beneficiary. You are essentially able to give them different incentives or goals. This way, you can influence their behavior by determining when they should get access to their inheritance.
This can cause some potential issues. A beneficiary may not be happy, feeling like their inheritance is being kept from them or that they are being forced to act a certain way. You also need to ensure that you have a trustee who will actually make the payouts at the appropriate time. But there are some ways in which these trusts can be very helpful, which are beneficial to consider.
Avoiding specific behaviors
For example, if you have concerns about a beneficiary’s behaviors, you could use the incentive trust to help avoid them. Maybe you are worried that they struggle with drug or alcohol addiction, which has led to repeated encounters with the police. You do not want them to use their inheritance to fund this addiction, so you stipulate that the incentive is that they can only take payouts from the trust fund as long as they have a clean record and do not get arrested.
Promoting positive behaviors
You can also use the incentive trust to set up positive goals for them to accomplish. An example could be telling someone they can access their trust fund when they graduate from college, for instance. This gives them an incentive to work hard in their classes and advance their education. You are essentially using their inheritance as a form of reward.
Additionally, incentive trusts are just one type of trust to consider. Be sure you know about all of your legal options when creating an estate plan.