Are you interested in having a bit of control over how beneficiaries use their inheritance? Maybe you’re writing an estate plan, but you’d like to know how someone will use your money in the future. Or perhaps you’re worried that a beneficiary will make poor choices, so you want to take some steps to protect them from themselves.
If these scenarios sound familiar, you might want to consider establishing an incentive trust. This trust holds the money, so the beneficiary doesn’t receive a direct inheritance. Instead, the trustee makes distributions from that fund. You can tell the trustee when you want those distributions to be made, giving your beneficiaries specific incentives they need to meet.
Gainful employment
One example of this is if you connected the trust distributions to the beneficiary’s annual earned income. Wealthy parents might do this to ensure that their adult children don’t quit working when they get an inheritance. It can incentivize the child to work harder and pursue promotions or raises, increasing their earned income and letting them take larger annual withdrawals from the trust.
Milestone accomplishments
Parties can structure incentive trusts to encourage beneficiaries to achieve specific life milestones before accessing their inheritance. For example, a trust might specify that a beneficiary receives a certain sum upon marriage, the birth of a child or reaching a specific age. These milestones should align with the grantor’s values and the beneficiary’s aspirations, encouraging them to build a fulfilling life.
Education-based incentives
Education-focused incentive trusts are designed to motivate beneficiaries to pursue academic and professional development. If a beneficiary has expressed an interest in becoming a dentist, for example, the trust could allocate funds to support their education and the establishment of their dental practice. However, the release of these funds would be contingent upon the beneficiary completing the necessary educational requirements, such as obtaining a degree in dentistry.
These are just a few examples of how you can use a trust in your estate plan. Consulting an attorney can help you assess your options and take the next steps.