There are many different legal devices that can be used when you are planning your estate. You never have to settle for an approach that is less than ideal, because there is a solution that can be implemented to address any concern.
With this in mind, we will look at the incentive trust in this post.
Encourage Desired Behavior
Incentive trusts are often used by high net worth individuals that could potentially set their loved ones up for life. Some people have no problem taking this approach, but others want to be certain that their family members are motivated to reach their full potential as human beings.
This can be done through the utilization of an incentive trust. As the name would indicate, when you establish this type of trust, you include incentives the must be met by the beneficiary.
To provide a simple example, let’s say that you want to guide a loved one toward a college education, and you want them to develop a work ethic after graduation.
You could fund an incentive trust and name a trustee to act as the administrator. Any adult that is willing to assume the role can technically act as the trustee. However, a professional fiduciary like a trust company or the trust department of a bank can be a better choice.
The professional trustee approach is particularly appropriate with an incentive trust, because it will be intact for an extended period of time. Plus, there is no reason for the beneficiary to harbor any hard feelings toward this impersonal trustee. The dynamic could be different if the trustee was a family member or a friend of the family.
Getting back to our example, you could instruct the trustee to pay for tuition, other college expenses, and living expenses as long as the beneficiary is a student in good standing. Perhaps you could allow for a lump sum “bonus” distribution upon graduation.
The incentives could be increased for graduate school, and there could be a dollar for dollar match of the salary that is earned by the beneficiary after graduation. Going forward, you could allow for lump sum portions of the principal to be distributed when the beneficiary reaches certain age plateaus.
Some people will take it a step further and incentivize the beneficiary to enter into a particular profession. This could be important to someone that wants to keep a family tradition in place through another generation.
In addition to the incentives that would guide someone toward positive behavior, you can also create a trust to lead the beneficiary away from self-destructive actions. This could enter the picture if you want to provide for a family member that has a substance abuse problem.
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There are hundreds of posts on this blog that you can explore, and it is not the only resource that we offer here on this site. We have other materials that you can tap into free of charge, and one of them is our estate planning worksheet.
This resource has been carefully prepared to give you a more complete understanding of the process. We urge you to take the time to go through it, and you can visit our worksheet page to get your copy.
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Written information is great, but at some point, action is required. If you have reached that point, we would be more than glad to help you put a plan in place.
As we have stated, there are many ways to proceed, and the ideal course of action will depend upon the circumstances. We can gain an understanding of your objectives and your family dynamic and help you create a custom crafted plan that is ideal for you and your family.
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Mr. Horowitz was awarded his Juris Doctor degree with honors from the University of Connecticut School of Law. While attending law school, Mr. Horowitz received the American Jurisprudence Award in Legal Ethics and the Nathan Burkan Award.
After graduation from law school, Mr. Horowitz continued his legal education at New York University School of Law where he received a Post Doctorate Law Degree in Taxation. He has also recently received a national achievement award.
Mr. Horowitz is admitted to practice before all the state courts in the State of Connecticut and the United States District Court.
Mr. Horowitz was selected for Super Lawyers in 2021, 2022 and 2023.
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