An incentive trust can be useful if you want to influence a beneficiary’s behavior in the future. You can use the trust to give them certain incentives so they will live in a way that you approve of. This can also be used to protect the inheritance if you’re worried that they might waste it.
For example, you could put money in a trust and say that the incentive is getting a college education. The beneficiary is entitled to the full value of that trust, but they can’t access it until they graduate. Another option may be to say that they can take annual payouts from the incentive trust that are equal to their annual earnings. This gives them the incentive to continue working.
Beneficiaries may see this as controlling
The problem with an incentive trust is that the beneficiary may believe that it is overly controlling. This can lead to long-term resentment and could cause some significant problems among family members.
For example, say that the incentive trust is focused on college, as noted above. But the beneficiary wants to join the military and wouldn’t need to go to college. Or they have a business idea and they’d like to start a company before they get a degree. Perhaps they’re good at athletics, so they want to pursue an athletic career, rather than educational opportunities.
The incentive trust may be seen as very restrictive by this beneficiary, who will then feel resentful that the trust is designed to control their life.
Setting up your estate plan
This doesn’t mean you shouldn’t use an incentive trust, but just that it’s important to consider all of your estate planning tools from every possible angle. Be sure you know what legal steps you can take to set up a plan that will work for all of your family members.
