Many people spend a lifetime accumulating their wealth because they hope to leave a legacy behind for their heirs — and there’s nothing wrong with that. Sometimes, however, they worry what will happen if they hand that money over too freely.
That’s where incentive trusts come into play.
What’s an incentive trust?
Like any other trust, incentive trusts create a legal arrangement where money left by the grantor is held and managed by a trustee on behalf of the beneficiaries. Unlike other trusts, however, payments are conditional. Beneficiaries have to meet whatever the specified requirements are that are listed in the trust to get the money.
For example, you can set up a trust that requires a beneficiary to abstain from drinking or smoking until they’re 30 in order to get their funds. Or, you might specify that your heirs can only access the money for education until they graduate from college.
What are the drawbacks of an incentive trust?
Usually, the biggest problem with incentive trusts is that they can be short-sighted. It’s hard to account for every potential future issue your heirs may have. For example, if you tie the trust to your grandson’s education, what happens if your grandson ends up in an accident that either suspends or ends their college career? Do you really want them to struggle financially through no fault of their own?
Estate plans and trusts come in many forms — just like families. There’s no way to determine what’s best for your needs without looking closely at your options. An attorney can walk you through your options and help you make the best decisions.