Nobody ever gave you a thing you didn’t work for. You certainly weren’t born with any silver spoons in your mouth. But because you weren’t afraid of hard work, you persevered and managed to accrue a nice-sized estate to leave your heirs and beneficiaries.
You worry, though, that their having unrestricted access to a large sum of money all at once could discourage them from working and being productive adults. You had heard that incentive trusts might solve your problem. Should you go that route with your estate planning?
Incentive trusts can be problematic
While they can be useful in some circumstances, incentive trusts can wind up causing a lot of problems for your heirs. Below are three ways these types of trusts can fail the needs of the beneficiaries.
All heirs are not equal
Say you set your trust up so that each beneficiary draws annually from the trust the amount that they earned that year. One of your grandchildren became a successful radiologist in a major city. Another one remained in their hometown, skipped college and married their high school steady. They are the assistant manager at the local supermarket and have several children. The disparity of the two beneficiaries’ disbursements will be huge despite both being gainfully employed.
Not all experience the same life events
If not based on money, an incentive trust based on life events like college and grad school degrees, marriages or the births of children can have devastating consequences for those whose lives take a different track.
Illness or injuries can preclude working
You wouldn’t expect a cancer-ridden beneficiary to drag themselves to a job every day in order to receive their quarterly disbursements, would you? If the terms of the trust are too restrictive, that’s what could happen.
Confused? Understand all your estate planning options
By learning more about the legal options available to you, you can choose the right estate plan for you and your beneficiaries.