Incentive Trusts are all a buzz right now.
Having not written about them in a while I thought it might be a great topic to share.
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a. Call me with any questions and/or
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Wishing you and your families a wonderful Spring.
You can pass on something more valuable than money to your children – you can pass on valuable life lessons
Many of us dream that our children will be responsible enough to handle their inheritance. But the reality is that many children and young adults are not quite ready for the pressures and responsibilities that come with inheriting wealth (especially at the early age of 18 which is what may happen if you have not done a Will yet).
There is a way for you to use wealth as a positive motivator, monetarily rewarding your children for their achievements – it’s known informally as an incentive trust. This type of trust can be an effective tool for promoting academic success and reinforcing the values that matter to your family.
Benefits of supplementing your Estate Plan with an incentive trust
Suggest Positive Behavior – An incentive trust allows you to reward your children for desired behaviors, while limiting access for undesirable behavior such as unproductive or immoral activity (of course, defining what is “immoral” can be quite subjective). Many trusts can be as restrictive as the parents wants them to be, as long as the restrictions imposed are not illegal – for example, specifying that your child must divorce his/her current spouse to receive an inheritance.
Age Restrictions – Restrictions related to your child’s age are often attached to trusts. You may not want your child to receive income or principal from the trust until he or she reaches a more mature age, such as 25, 30 or whatever you decide. You can also plan for distributions of funds to be staggered over time, at various “benchmark” ages, to help your child learn how to manage money responsibly. At the very least, this strategy eliminates the possibility of your child spending or giving away his or her inheritance all at once.
Encourage Education – Trust distributions can be contingent on your son or daughter graduating from high school, achieving certain grade point averages or obtaining a postsecondary degree. You could also decide to distribute a portion of funds after successful semesters or academic years as a positive motivating tool.
Promote Positive Values – Some grantors will establish trusts that won’t pay out money if the beneficiary indulges in destructive and/or illegal behavior such as smoking, using illegal drugs or abusing alcohol.
Family Business or Employment – Your incentive trust can include provisions that reward your children for assuming important responsibilities in a family business or simply maintaining gainful employment. As another way to promote employment, you can set up the incentive trust to pay out a matching amount for each dollar earned by your children. T
Volunteering for a worthy cause– You can help your child develop an appreciation for volunteerism and community involvement.
If you decide to add an incentive trust to your Will, you should use great care when drafting the necessary documents; make sure they allow a degree of flexibility to accommodate changing circumstances and unintended effects.
The key to the success of the incentive trust is good communication: make sure you discuss the intentions and restrictions of the trust with the trustee (the person or organization managing the trust) and your children (if they are old enough to understand this conversation).
When used properly, the incentive trust can encourage higher education, philanthropy, a strong work ethic, healthy living and sound financial planning, and prevent the misuse of wealth. That way, you can pass on something more valuable than money to your children – you can pass on valuable life lessons.
Michelle-Shari Kruss, Attorney at Law
Wills and Trusts for Busy Parents