Trusts give you a lot of estate planning options if you’re particular about how you pass your money on to the next generation. A will allows you to simply leave assets to people, but maybe you want to have a say in how you leave those assets or how your heirs use them. That’s where trusts come in. Let’s consider why you may want to use an incentive trust.
The goal of an incentive trust is to guide behavior. You want someone to work toward a specific goal or live in a certain way. You can then use your wealth as the incentive to get them to do it. Think of it like a reward.
For instance, perhaps one of your heirs has struggled with drug abuse issues in the past. You use your will to leave $100,000 to all of your other heirs, but you put the $100,000 in an incentive trust for that specific heir. You stipulate that, for every year that they do not get arrested for a drug offense, they get $10,000.
This serves two purposes. First off, it encourages them to improve their lifestyle and adhere to the law. You may be able to help them break a bad habit. Secondly, it limits how much money they get all at once and may make it less likely that they would use the money on their drug habit. Leaving them $100,000 could spell disaster. The incentive trust means you don’t have to cut them out of the plan, but you can use it to help them.
This is just one type of trust. Be sure you consider all of your options.