People often make assumptions when it comes to estate planning, and they think that they have to settle for a planning strategy that is less than ideal. Unfortunately, in far too many cases, these mistakes yield negative consequences.
There are many different estate planning approaches that can be taken, and there is a way to satisfy most objectives. With this in mind, we will look at the legal device called an incentive trust in this post.
You may have concerns about leaving a large, lump sum inheritance to a member of your family for one reason or another.
For example, there can be a young person on your list that has not yet gone to college. If you were to leave them a good bit of money, they may have no real motivation to achieve their own potential.
This is the last thing you want to do, so you can use an incentive trust to guide the young person in the right direction.
The best way to explain how this can be beneficial is through the presentation of a hypothetical scenario. Let’s say that you have a granddaughter that is going to be getting an inheritance. You can make her the beneficiary of one of these trusts, and you name a trustee to act as the administrator.
This can be someone that you know personally, but you have another option. You could engage the trust department of a bank or a trust company to act as the trustee.
If you go this route, there would be no longevity concerns, and the trustee would act in a totally unemotional manner. The professional financial manager would be able to effectively position the funds that comprise the trust, and the trustee would be subject to inherent organizational oversight.
For the purposes of our example, we will say that you want to make sure that your granddaughter goes to college, and you would like her to put the education to good use. The overall motivation is to nudge her toward holistic fulfillment.
To this end, when you establish the trust declaration, you can instruct the trustee to pay for school tuition and provide a certain amount each month for living expenses. You can also give the trustee the freedom to make discretionary distributions under certain circumstances.
The distributions can continue for as long as the beneficiary is a student in good standing. There could be a provision for a bonus distribution upon graduation, and you can sweeten the pot to incentivize graduate school attendance.
Going forward, you could help to instill a work ethic by matching every dollar that the beneficiary earns on the job after her college days are behind her. She could then receive larger distributions of the principal when she reaches certain age plateaus.
An incentive trust can also be used to guide someone away from destructive behavior. The possibilities are essentially endless, with one exception. Not that anyone would do this, but the grantor of an incentive trust cannot compel the beneficiary to do something that is illegal.
Download Our Estate Planning Worksheet
If you would like to gain a better understanding of the estate planning process, we have a great resource that you can access through this website. Our estate planning worksheet has been carefully prepared to convey a great deal of useful information in a very efficient manner.
It is being offered free of charge, and you can visit our worksheet access page to get your copy.
Take Action Today!
Written information is great, but at some point, it is time to discuss your estate planning objectives with an attorney. If that time is now, we are here to help.
You can schedule a consultation appointment if you give us a call at 802-879-7133, and there is a contact form on this website you can use to send us a message.