Naperville Estate Planning Attorney Discusses Incentive Trusts

incentive trust, Naperville estate planning lawyerIt would be nice if every person was financially responsible and capable of making good decisions regarding money, but the reality is that many people struggle with establishing good spending habits. For such individuals, money in hand does not last long, often being spent on frivolous things—at least in the opinion of their friends and family members.

In my practice as an estate planning attorney, this topic comes up quite often, as many of my clients have expressed concern about leaving substantial inheritances to children, grandchildren, or other beneficiaries who are financially irresponsible. They fear that their assets will be quickly wasted but are afraid of the repercussions of cutting certain would-be heirs out of their estate plans. In many such cases, an incentive trust may provide a suitable solution.

Understanding Incentive Trusts

An incentive trust is a unique type of trust that can allow the creator to set conditions on how the assets in the trust are to be distributed. These conditions are often designed to reward positive behaviors and to discourage actions or behaviors seen as negative or destructive. For example, an incentive trust could be set up in such a way that a beneficiary will not receive any proceeds from the trust unless he or she graduates high school in a satisfactory manner and goes on to attend college. Disbursements could be then increased upon the beneficiary’s graduation from college.

Conversely, the trust could also be designed to terminate disbursements if the beneficiary is arrested or tests positive for illegal drug use—assuming tests are stipulated in the trust documents. There is virtually no limit to the types of conditions or incentives that could be included, as long as the conditions are not illegal.

Pros and Cons

There are many benefits to using an incentive trust, including increased control over your assets well after your death.  Such trusts can inspire a strong work ethic in the named beneficiaries while helping prepare them for the challenges that lie ahead. They can also prevent beneficiaries from relying on your money to live a comfortable lifestyle with little or no effort of their own.

On the other hand, many people use incentive trusts to push their children or grandchildren into the family business. They may also use the trusts to set goals that are unrealistic for certain beneficiaries. It is important to take such concerns into consideration when creating an incentive trust, as strong family resentment could develop as a result.

Call a Trust Professional

If you would like to know more about incentive trusts and how they might help you reach your estate planning goals, contact an experienced Naperville trusts attorney. Call 630-756-1160 for a confidential consultation at The Gierach Law Firm today. We will work with you in exploring your available options and will assist you in creating an estate plan customized to meet your needs.

 

Sources:

Wealth Management

Investopedia