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Should you incentivize a beneficiary’s trust?

On Behalf of | Mar 11, 2022 | Estate Planning |

It’s never too soon to start your estate planning. Today we will examine one type of trust you may consider as you weigh your estate planning options.

If you plan on putting some of your assets in a trust for your heirs and beneficiaries, you might question whether you should incentivize the trust. If you have never heard of an incentive trust, read on for some vital information about this estate planning tool.

What does it mean to “incentivize a trust?”

An incentive is something that you are given as a reward to encourage positive actions or to discourage negative actions. In this case, however, it is a way to keep your beneficiaries on a positive life track after you have passed on.

How does it work?

Young beneficiaries might need guidance Since you will no longer be physically here to guide them, an incentive trust is one way to do that. An incentive trust may include conditions to keep them on the right path. For instance, you could include provisions to receive disbursements from the trust only if they remain enrolled in and graduate from a college or university with a degree.

With older beneficiaries, the terms could include a necessity to remain employed to receive the disbursements or get bonus disbursements upon marriage or childbirth.

What are the pros of an incentive trust?

Incentive trusts may sometimes be helpful. While not applicable for everyone, some people do appear to live more productively when inspired by incentive trusts. These trusts can keep students in school and slackers employed. But there can be problems.

Whare are the possible negative consequences of incentive trusts?

One problem is that these trusts do not fully address all contingencies your beneficiaries could face. For instance, not all beneficiaries can intellectually handle a college-track education. Would you want them to be denied their share of your estate because they lacked the intellectual capacity to graduate college?

Employment clauses can be burdensome, too. What if a beneficiary suffered illness or injuries that rendered them unable to be gainfully employed? Or if they married and remained a stay-at-home parent who cared for the children? Or didn’t need to work and instead volunteered for good causes? You certainly can include such contingencies in the trust’s terms.

Because you cannot anticipate all possibilities, you need to appoint a trustee who can evaluate your beneficiaries’ situations fairly and objectively and make disbursements accordingly.


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