An incentive trust is basically an irrevocable trust that provides a monetary incentive for an heir to behave according to standards set forth in the trust document. Typically, incentive trusts can be used for heirs that you wish to provide for, but who may be addicted to drugs or alcohol, display criminal behavior, have trouble holding a job, or engage in other undesirable behaviors.
An incentive trust must state the behavior that must be adhered to before trust assets are dispersed. You may set forth a compliance date or regular check-ins that, if followed will allow your trustee to turn over some of the funds of the trust. Regular milestones could include holding a job for a certain amount of time, clean drug and alcohol tests, no criminal behavior, and even regular attendance at drug and alcohol support groups.
The incentive trust can disperse a set amount of funds or it can vary, depending upon the accomplishment. You could pay different amounts for passing grades for example, or you could match your heir’s salary, dollar for dollar. The trust can also state that if the heir displays continued good behavior for a set amount of time, that the total amount of the trust will be released to them. In this manner, the heir has an incentive to maintain the good and modified behavior for a longer length of time.
Incentive trusts can also be used to promote more than just good personal behavior. You can also encourage your child to graduate from college by offering an incentive “bonus.” You can implement volunteering in the community for a set number of hours and offering a cash reward. If you have a family business that you wish them to maintain and not sell, this can also be incorporated into an incentive trust.
The most important detail with an incentive trust is setting out the terms and conditions for distributing the funds, so that the trustee understands the requirements needed before releasing the funds. An estate planning attorney can answer any questions or concerns you have regarding incentive trusts and help you implement this type of trust if you desire.
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