You will sometimes see interviews with excessively wealthy individuals, such as billionaires or multimillionaires, who say that they are not going to leave this overwhelming wealth to their children. They may leave them a small amount or they may leave them nothing at all.
If you find this surprising, you’re not alone. But the concern that these wealthy individuals express is often that they are worried that leaving an inheritance to their child is going to take away that person‘s drive to succeed and accomplish things in their own life. Maybe they would’ve had a successful career or started their own business, but the inheritance means that they can simply stop working and live off of the money.
An incentive trust
If you are concerned about this – even if you’re not a billionaire – you don’t necessarily have to disinherit your child. You don’t have to cut them out of the will or leave them nothing. An alternative would just be to put the inheritance in a trust.
For example, an incentive trust could be used to give that person goals that they have to meet. For instance, maybe you want to ensure that they still work hard and focus on their own career. The incentive trust could say that they get an annual payment that is equal to their annual income.
This way, the child can certainly reap the rewards of that wealth, giving them far more money than they would have earned otherwise. They will have a financially secure life. But, at the same time, they can’t quit working entirely, as they would get nothing from the trust if they had no income. The trust gives the child a built-in financial incentive to be as successful as possible on their own.
This is just one example of how an estate plan can be designed to address specific concerns. If you’re drafting a plan, you need to be well aware of the legal tools at your disposal.