You have the ability to craft your legacy in a way that makes life better for the people that you will be leaving behind in various different ways. Of course, you can leave lump sum inheritances and let the individuals that are receiving the bequests do whatever they want to do with the resources.
This can be the right choice for some, but for others, you may want to go in a different direction. Before you make any final decisions along these lines, you should understand your options with regard to asset transfer vehicles.
One device that can be very useful when certain circumstances exist is the incentive trust.
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You can include incentives when you create this type of trust that the beneficiary must satisfy in order to receive monetary distributions. From a legal perspective, you can include any type of stipulations that you want, as long as you are not requiring the beneficiary to do something that is illegal.
That’s a very broad statement, so we will provide a hypothetical example to give you an idea of the way that some people use incentive trusts. Let’s say that you want to leave an inheritance to a grandchild that has not yet attended college.
You could create a trust that pays out money for the rest of their life without asking them to do anything for it, but this may not feel right to you. Another option would be to fund an incentive trust and leave behind instructions for the trustee with regard to the nature of the asset distributions.
One way to proceed would be to allow the trustee to distribute a certain amount every month as long as the beneficiary remains in college, and of course, college tuition would be paid as well.
After graduation, you could provide a congratulatory lump sum of some type, and add an incentive for attending graduate school. Some people will engender a work ethic by offering a dollar for dollar match of money that is earned by the beneficiary after they enter the workforce.
Subsequently, you could instruct the trustee to start to distribute large lump sums when the beneficiary is 40, 50, and 60 years old. Once again, this is just a hypothetical example of an incentive trust structure that makes sense for some people, but the possibilities are endless.
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