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Ways an incentive trust can be used to motivate inheritors

When people enter into estate planning, often there are reservations over what the people who receive the estate, or beneficiaries, will do with it. Will they responsibly manage it, or will they waste the gift?

Instead of leaving it up to chance, or blind faith, many choose what is commonly referred to as an “incentive trust.” Incentive trusts could be any number of different trusts: revocable living trust, testamentary trust or even an irrevocable trust. Being educated about high-asset estate planning and wealth transfer is the key to making sure that assets are protected.

Encouraging and rewarding positive behavior

Incentive trusts can be designed to reward and encourage hard work and progress in life. Here are a few examples of how this could be accomplished:

  • University: If the pursuit of higher education is a goal for the beneficiary, then tuition reimbursement can be included with the stipulation of passing grades.
  • Employment: Ensuring that the beneficiary maintains full-time or part-time employment is one benefit of an incentive trust. Some strategies include matching the income that the beneficiary makes on their own from the proceeds of the trust. This is a powerful tool to motivate beneficiaries in the right direction.
  • Purchasing a home: Clauses that match down payments can help reward saving for that first home purchase.
  • Marriage and family: If one wants to encourage settling down, then getting married and/or having children can be rewarded with the trust.

Not all have the same goals for their beneficiaries, and an incentive trust has the flexibility to make virtually anything a motivating goal.

Discouraging and punishing negative behavior

Just like positive reinforcement can be used, so can discouraging negative behavior. Here are two examples:

  • Drugs and alcohol: If the beneficiary has a history of drug or alcohol abuse, an incentive trust can include drug testing as a requirement to continuing to receive funds.
  • Legal trouble: Funds can be denied if the beneficiary finds themselves in trouble with the law.

Estate planners have different morals, cultures, religions and ethics. Using the creativity of an incentive trust includes the ability to discourage as well as encourage behaviors. There are many interconnected estate planning tools that are available to those that are diligently planning the fate of their estate.

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