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Motivate Heirs with an Incentive Trust

An Incentive Trust is a powerful estate planning tool that can help motivate your beneficiaries to make the most of what you leave them. Keep reading to learn more!

When creating your Estate Plan and deciding how best to leave an inheritance to your children, questions may arise regarding your options. If you have money and other assets such as jewelry, cars, property, 401k accounts, have you wondered if there is a way to motivate your heirs with an Incentive Trust?

If you are someone who is looking to leave your children assets with specific conditions, you, the Grantor, may want to consider leaving your children their inheritance in an Incentive Trust. 

Here at Trust and Will, we know that it can be important to you to be able to motivate your children to reach goals and complete positive behaviors prior to receiving their inheritance. We also understand that laws regarding Estate Planning can seem confusing. That is why we have put together this brief article to go over what an Incentive Trust entails, how it works, and how you can use it to motivate your heirs after you pass. 

What is an Incentive Trust?

A Trust is an Estate Planning arrangement (usually notarized) in which one person holds the assets of another for the benefit of a third party, called the Beneficiary. A Trustee can be an individual person or member of a board who is legally obliged with the powers of administration of property as specified in the Trust.

A Trust goes into effect immediately after it is funded, while you, The Grantor, are still alive. Trusts offer greater control over when and how your assets will be distributed, and allow for a faster transfer of your assets to your Beneficiaries. A Trust can help preserve your assets for your loved ones, and help avoid any additional court delays and other expenses after your death. Additionally, a Trust often allows your Estate to remain private because the transfer of your wealth occurs outside of probate - which would otherwise deem it public record.

An Incentive Trust is an inheritance that includes specific conditions that must be met by the Beneficiaries named in the trust.  An Incentive Trust may give you, the Grantor, some leverage at encouraging your heirs to meet certain goals and behaviors prior to receiving their inheritance. 

How Does Incentive Trust Work?

To understand Incentive Trusts, you will first need to understand the roles of those affiliated with the Trust: The Grantor, The Trustee, and the Beneficiary. 

  • The Grantor, (also known as The Settlor) is the person who creates the Trust and determines its terms. 

  • The Trustee is the person The Grantor appoints to oversee the administration and eventual distribution of the assets to the Beneficiaries, as directed in the Trust. 

  • The Beneficiary is the person(s) who will inherit the assets held within the Trust. 

An Incentive Trust works by having The Grantor specify stipulations or contingencies within the Trust that the Beneficiaries must either perform or abstain from in order to obtain the inheritance and/or assets held within the Trust. Until the Beneficiary has met the stipulations or contingencies, the Trustee will be responsible for maintaining the inheritance and/or assets that are held within the Trust. 

What Type of Actions Can You Use an Incentive Trust to Help Motivate?

An example of the type of actions and how an Incentive Trust may help to motivate - is inclusion in the Incentive Trust that the Beneficiary can only obtain access to their inheritance once they have attended college, or completed a college degree. An additional layer you may add on could be stipulating that not only do they need to go to college, but the inheritance must only be used for their college education and other college-related expenses. 

An example of a behavior you may be hoping to discourage could be drinking or doing drugs. For example, you could stipulate that the Beneficiary will only receive the funds once they have successfully completed rehab and have maintained sobriety for a specific length of time. 

Important Steps to Take to Ensure the Incentive Trust Will Be Successful

To ensure that the Incentive Trust is motivating the behaviors you are hoping to inspire from your loved ones, you will want to make sure your Incentive Trust is worded clearly and as thoroughly as possible. 

Be Specific 

When it comes to legal documents, you always want to be as specific as you can to ensure that your values, intentions, and directives are made clear to your Beneficiaries - and that there are no loopholes that could circumvent your wishes. You do not want to leave anything up to chance or have your Trustee or Beneficiaries guessing about your intentions.

Additionally, you will need to be very specific about the reward terms, including the amount of money or assets that your Beneficiaries will receive, and when. This will help make sure your Beneficiaries receive all of the inheritance you intended for them.

Provide an Explanation

It is possible that the loved ones you have designated as the Beneficiaries of an Incentive Trust may become frustrated with your decision to only give them their inheritance once specific conditions have been met. They may not understand or agree with your reasoning, and may feel that it is unfair. Do your best to alleviate their feelings of frustration by including in your Incentive Trust an explanation as to why you made your decisions. It would also be a wise idea to discuss your plans in advance, preferably in person. This will help your loved ones to better understand your thoughts and intentions.

Determining your many options when creating your Estate Plan or Incentive Trust can seem daunting, especially if you feel you are lacking in assistance or direction. Trust and Will can help simplify the process for you. With our online Estate Planning services, we have changed the game for how Estate Planning is done. Here at Trust and Will, you can create your Will, Trust-Based Estate Plan, and Nomination of Guardian documents all from the comfort of your own home computer. Unsure of where to start? Take our free online quiz and let us point you in the right direction. If you need further assistance, we also offer additional attorney assistance for those who want it. What are you waiting for? Get started today!