When you are in a position to leave behind inheritances that can have life changing consequences for your loves ones you have a pleasant problem. You may want to make life easier on your family than they were for you, but at the same time you don’t want to adversely impact one’s motivation and work ethic.
By the time you have reached your twilight years it is likely that your children have become established in their own right. Leaving an inheritance out right to those who have already made it can be done with confidence. But you may have children with creditor problems or you may have younger children or family members that have not yet established themselves. Also, there could be someone in the family with a substance abuse problem, or an individual with a gambling problem. These factors present special planning considerations as you plan your estate.
One way that these types of concerns can be addressed is through the creation of an incentive trust. These instruments involve the naming of a beneficiary and the appointment of a trustee like other trusts, but there is one key difference. You as the grantor of the trust attach stipulations that must be met before distributions from the trust will be made.
If you have a younger heir these may be educational. You could allow for regular monthly distributions as long as the beneficiary remained a student in good standing. Perhaps you could offer an additional lump sum distribution upon attainment of an advanced degree. There are those who take it a step further and stipulate that the trust will match every dollar that the beneficiary earns on the job once he or she enters the workforce to encourage a strong work ethic.
You can include many variations of conditions that you see fit. Incentive trusts can go a long way toward alleviating concerns that you may have about your beneficiaries. It is important however to keep in mind that too many “strings attached” to an inheritance can result in resentment. Compelled behavior may not always be psychologically beneficial. Still incentive trusts are powerful tools and can be effective motivators in many circumstances.
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