You have options when you are planning your estate, and this is one of the reasons why you should engage an estate planning attorney. If you have specific objectives, there is some type of approach that can be used to address them.
With this in mind, let’s look at the legal device called an incentive trust.
Encourage Positive Behavior
A large windfall of money can potentially do more harm than good if the recipient has not reached full maturity. You may have concerns about this if you are in a position to help younger family members when you are engaged in the estate planning process.
As a response, you could establish an incentive trust. The best way to explain how you can proceed is through the use of a simple example.
Let’s say that you have a grandchild that has not yet attended college. In the trust declaration, you can instruct the trustee to pay school tuition and cover living expenses while the beneficiary is a student in good standing.
You could allow for some type of lump sum distribution when the beneficiary graduates, and the trust can include additional incentives for postgraduate degrees. The trust could then provide a match for every dollar that the beneficiary earns after graduation to instill a work ethic.
There could be a provision for larger distributions when the beneficiary reaches certain age plateaus. This is an example of the way that an incentive trust can be used to encourage positive behavior.
On the other side of the spectrum, the incentive trust terms could guide the beneficiary away from self-destructive actions. If you have a person with a substance abuse problem on your inheritance list, you could include stipulations with regard to clean testing and rehabilitation if it becomes necessary.
Simply put, the incentives that you include are entirely up to you. The one caveat would be that you cannot require the beneficiary to do anything that is against the law.
Incentive Trust Trustee
When you establish an incentive trust, you have to empower a trustee to act as the administrator of the trust. Your first thought may be that the trustee must be someone that you know personally, and it is legal to name any competent adult who is willing to assume the role.
That being said, you may not know anyone who is qualified to administer a trust. Even if you do, longevity can be a source of concern, and it is also important to use a trustee who will manage the trust dispassionately.
Trust companies and the trust departments of banks offer trustee services, and some professional practices will act as fiduciaries. If you go this route, there would be no emotions involved, and the trustee would have established investment policies.
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If you have already digested enough information to conclude that it is time to put an estate plan in place, we are here to help.
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You can schedule a consultation appointment with our attorney in Charlotte, North Carolina or Huntersville, North Carolina if you give us a call at 704-944-3245. The number in Ashland, Kentucky is 606-324-5516, and the number in Florence, Kentucky is 859-372-6655. If you would prefer to send us a message, simply fill out the contact form on this website.
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