When you are making an estate plan, you may find yourself thinking about the future of your beneficiaries. Maybe there are certain goals you want them to accomplish, or you are looking for ways that you can influence their lives. Perhaps you are worried that they will make mistakes, and you would like to prevent them from doing so.
One way to do this is by using an incentive trust. Instead of giving the beneficiary their inheritance as a one-time payment, you put the money into the trust. You then tell the trustee what goals the beneficiary must accomplish before they receive any payouts from that trust. In this way, you can help to influence their behavior.
Positive and negative goals
You can use this in a few different ways. For instance, you may want to pick something positive, such as a grandchild graduating from college. You could state that they are not allowed to withdraw any money from the trust until they have a college degree. This helps to ensure that they will prioritize education and rewards them for doing so.
However, you can also focus on the negative aspects of a person’s life. For instance, perhaps a beneficiary has had trouble with drug addiction or run into other legal issues with the police. You could state that they are entitled to a yearly distribution from the trust, but they only get that distribution if they stay out of trouble. If they ever get arrested, then they forfeit that portion of their inheritance. This incentivizes them to live in a more positive manner.
These are just two examples, but you can see how trusts give you control over an inheritance and allow you to make important decisions. Be sure you know what legal steps to take when setting one up.
