An incentive trust can help keep beneficiaries on the right path

You probably already know that a trust is a good way to leave behind assets for your loved ones. Have you heard of an incentivized trust, though? It might seem counter-intuitive to make heirs work for a trust, but it can help keep your wishes at the front of their minds.

An incentivized trust helps guide your heirs long after you've passed away. It can have a trustee appointed that only doles out the assets once the trust's requirements have been met.

Here's a good example. If a father passes away and leaves a trust for college only, then the child who wants to obtain the trust must reach the point where going to college is a possibility. This can incentivize him or her to do well in school or to work hard to get scholarships so that more of the money that comes from the trust goes straight into their accounts.

A trust could also give special rewards to beneficiaries who do kind or charitable work. Trusts also have the potential for requirements that penalize beneficiaries; for example, if a beneficiary is meant to work and receive the trust, failing to work a steady job could mean a decrease in trust payouts, incentivizing the person to stay in a career even if he or she is well off without the trust.

It's true that some heirs could be punished unfairly if there is an accident or a requirement that can't be met that you didn't foresee, so it's important to have a legal professional draft a trust that shows what should happen in special circumstances. Overall, this is a good way to make sure your wishes are known and that they're followed through on.

Source: Online Athens, "Savvy Senior: Incentive trusts can motivate your heirs," Jim Miller, Nov. 10, 2016

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