Motivating Heirs to Earn Their Inheritance with Incentive Trusts

After working hard to create a legacy, most people want to make sure their loved ones will be able to enjoy the benefits. Estate plans and trusts allow individuals to decide how and in what increments they wish to leave gifts, and can help prepare their beneficiaries for the future. Although including stipulations with trust funds is nothing new in the realm of estate planning, incentive trusts are a way to mandate specific conditions recipients must meet before accessing any funds.

While most trusts include an age requirement so that recipients will be old enough to handle their money wisely, incentive trusts take things a step further. Benefactors can stipulate educational, marital, career, philanthropic, and health conditions that an heir must meet before receiving a part of their trust. This form of estate planning may make a beneficiary more inclined to achieve desired life and career goals.

A common condition is that heirs should graduate college. Some are satisfied with an undergraduate education, but others may offer heirs an additional bonus if they pursue advanced degrees such as a master’s degree or a a PhD. Additional payments can be set to occur when an heir gets married or if they have children. Some interesting ways people have used incentive trusts are by making heirs write essays detailing the way they will use funds or by requiring them to pass a drug test.

The main challenge with incentive trusts is that they can be complicated and expensive to create and enforce. Many trust fund recipients have found loopholes around requirements, so consulting a professional estate planner is necessary to ensure the benefactor’s wishes will be carried out. While estate planning experts do not advise anyone to go overboard with their conditions, incentive trusts are just one example of the amount of control individuals have when deciding what to do with their assets.

Though your options are virtually limitless when it comes to estate planning, deciding on the “who, what, when, and how” and executing this with the least amount paid in taxes, legal fees and court costs possible can be a challenging and emotional affair to wrestle with alone. For more information, contact Talley LLP today.

Archives