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What is an incentive trust?

by | Dec 15, 2020 | Wills And Trusts |

Before you leave property to someone as part of your estate plan, you may want to consider the power that money can have over people. An incentive trust offers a chance to encourage someone to act in a way that you believe is for their own good.

How can incentive trusts promote positive behavior?

Let’s say you have an errant teenage grandchild. You believe they are underachieving in school and hanging out with the wrong crowd. You fear if they continue in this vein, they will squander their considerable talent and intellect.

You could use an incentive trust to encourage them to complete their education. It would work by leaving the child a sum of money on the condition that they finish their schooling. Thus they have the incentive of money to move them to succeed and the threat of losing their inheritance if they don’t.

What are the problems with incentive trusts?

There is a danger you are imposing your values on someone else without respect for their individuality. Not everyone will benefit from continuing education. Your grandson, for example, may want to pursue a career as a contractor, and the money you set aside for their college education would be better used to start their business. 

It can also be hard to write an incentive trust that takes into account all possible situations. Imagine, for example, that your granddaughter suffers a car crash and has to drop out of college due to devastating injuries. If you do not have a clause to cover this, she could lose her claim to the money when she needs it more than ever.

Creating an effective estate plan for your situation isn’t always easy. Incentive trusts are just one of many estate planning tools available. An experienced attorney can help you learn more.

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