When you are planning your estate with the knowledge that you are in a position to leave life changing amounts of money to your loved ones it can be a very satisfying feeling. But at the same time, when you have been successful you want to leave behind more than just monetary assets. You invariably want to see your loved ones reach their full potential as individuals, and it is not uncommon for some people to lose that personal drive to succeed when there is no financial incentive.
There are those who would say that concerns about giving your loved ones money that they did not earn is a pleasant problem to have, but it can be vexing nonetheless. This scenario is especially applicable to younger family members who are not yet established and those who may have some personal problems or a demonstrated history of poor money management.
If you were to have these types of misgivings about a particular heir or heirs the solution could lie in the creation of an incentive trust. With these instruments you fund the trust and name a beneficiary as you would with any type of trust. But when you are drawing up the trust agreement you add stipulations that must be met before distributions from the trust can take place.
For example, if you were leaving a bequest to a grandchild or great-grandchild who had not finished college, you could allow for regular distributions as long as this heir remained a student in good standing. You could state that a lump sum payment will be made upon graduation, and perhaps after finishing graduate school.
You can also use an incentive trust to guide a loved one away from self destructive behavior. For example, if you had a family member who had a substance abuse problem, you could make treatment and testing conditions that must be met before distributions take place.
Incentive trusts can contain any type of stipulations that you see fit, and they can provide you with peace of mind when you are concerned about whether or not an inheritance will do a loved one more harm than good.
Larry Parman
Founding Attorney
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