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Wednesday, August 24, 2022

Have You Ever Heard of an Incentive Trust?

In developing your estate plan, there are a number of dilemmas you may face. Yes, you may want to leave certain financial resources to your loved ones, but you may worry about where that money will go, how it will be spent, and when it will be spent. These are natural concerns. You are, after all, worrying about your legacy and what your legacy will be supporting. Fortunately, you can use an incentive trust to help ensure the money you leave to your loved ones go to supporting goals and achievements you would have wanted to support for your loved ones. Let us explain how incentive trusts can accomplish this.

Have You Ever Heard of an Incentive Trust?

An incentive trust is named as such because the trust document includes specific conditions that must be met in order for a beneficiary to receive a trust distribution or specific conditions on how a trust distribution must be used. You see the trust distribution is the “incentive” for the trust beneficiary to comply with the conditions set on the distribution itself. The conditions of an incentive trust can widely vary, but they cannot be illegal or against public policy. Some of the more commonly included conditions in incentive trusts include the beneficiary:

  • Obtaining a degree or professional certificate
  • Raising a child
  • Staying involved in the community
  • Volunteering
  • Maintaining employment
  • Refraining from drug use
  • Getting married

The conditions you place in your incentive trust can guide and support your trust’s named beneficiaries toward the goals and accomplishments you want to support. It can avoid you leaving your loved ones an inheritance that, to you, would end up being misspent or otherwise whittled away on things you would not necessarily support. Be thoughtful, however, in setting the conditions of your incentive trust. These conditions can most certainly rub your beneficiaries the wrong way. Consider discussing the conditions you are planning to establish with the people that would be named as beneficiary of the trust. Do what you can to help ensure that they see your perspective and understand your goals. This can avoid a lot of frustration and hurt later on.

As you can see, there are some major advantages to establishing an incentive trust. There are also things to be cautious of. This includes potential anger and frustration on the part of the beneficiaries. You should also note that there may be more legal fees and administrative costs associated with this kind of trust. After all, the trustee has an exceptionally large responsibility placed on their shoulders. Not only do they have to manage the trustee to benefit the trust beneficiaries, but they need to help ensure that the conditions of the incentive trusts are met before making any distributions from the trust. Depending on the wording and condition set forth in the trust, it may not always be clear if a condition of the trust was fulfilled and whether a trust distribution would be merited.

Estate Planning Attorney

If you are interested in establishing an incentive trust as part of your comprehensive estate plan, Verras Law can help. Contact Verras Law today.


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