Estate planning is not a cut and dried, simple affair. When you are planning your estate, you have some serious thinking to do. After all, you will be passing along everything that you have earned to the people that you love the most. Clearly, you may be in a position to do a lot of good, but there can be some concerns brewing just beneath the surface.
Leaving a large, direct inheritance to a loved one who has not yet achieved his or her full potential can be troubling. You never know how someone will react to a windfall of money. The newfound wealth can sometimes do more harm than good.
For example, let’s say that you have a granddaughter who has not yet completed college. If she was to receive a large inheritance, her academic aspirations could be derailed. Why do you need to embark on a career path to earn money if you are already wealthy?
Incentive Trusts
You could consider the utilization of an incentive trust to address this type of situation. To stick with our example, you could establish and fund an incentive trust for the benefit of your granddaughter. In the trust declaration, you could instruct the trustee to use assets in the trust to pay for your granddaughter’s college education. You could also provide distributions to address living expenses on a monthly basis.
The monthly distributions would be tied to college attendance. As long as the beneficiary is a student in good standing, the distributions would be made.
Perhaps you could instruct the trustee to pass along a larger “reward” distribution after undergraduate work has been completed, and you could allow for another one after the completion of postgraduate work.
It is also possible to use the incentive trust to instill a work ethic in the beneficiary after graduation from college. You could empower the trustee to match the beneficiary’s on-the-job earnings dollar for dollar.
Guiding someone that you love in a positive direction is one way that you can use an incentive trust, but you could also use this type of trust to steer a family member away from personally destructive behavior. For example, if you have a loved one with a substance abuse problem, you could allow for distributions from the trust after a rehabilitation program has been completed.
If you want to, you could allow for ongoing distributions as long as the loved one is doing the right things.
An incentive trust can provide you with peace of mind if you want to make sure that your generosity does not do more harm than good. However, you do have to give the matter a lot of thought before you decide to utilize this type of trust.
Experts point out the fact that there are those who can spiral into negative behavior when they are given an inheritance with “strings attached.” Plus, if you give some family members direct inheritances, there can be resentment within the family after you are gone, so you have to weigh all of these factors before you make any final decisions.
Join Us for a Free Seminar
We have provided a little bit of basic information about a single estate planning tool in this brief blog post. An incentive trust can be the right choice for some people, but there are many different ways that you can facilitate asset transfers.
You should certainly explore your options and develop a broad understanding of the estate planning process when you start to get serious about your legacy. Many people do not know where to begin, and they really don’t know what questions they should ask.
This is absolutely understandable, and we do everything possible to provide information to people in the greater Burlington area in various different ways. As you can see, we regularly update this blog, and you can learn a great deal if you bookmark the page.
Plus, we have an electronic library of special reports that you can access through this website. These reports are absolutely free of charge, and you can get copies of any or all of them at any time.
We also offer live seminars on an ongoing basis, and there is no charge to attend these valuable information sessions. Our seminars cover various different estate planning and elder law topics.
Though the seminars are free, we do ask that you register in advance so that we can save your space. To see the schedule, click this link: Burlington VT Estate Planning Seminars.
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