Trusts come in many forms and can be useful to people from all kinds of backgrounds and situations. Those who have significant assets and worry about what their family members would do with an inheritance might want to consider adding incentive trusts to their estate plans.
You can leave property for the protection of a loved one or the enrichment of their life while also creating a barrier between them and direct control over those inherited assets. An incentive trust requires that the beneficiary meet certain conditions to access or utilize the resources left for them in a trust.
The person you name as trustee will play a crucial role in supporting the beneficiary and distributing resources when circumstances meet the requirements established in the trust paperwork. What are some of the situations in which an incentive trust is a good option?
You have a loved one with addiction issues
Maybe your spouse developed a habit of abusing prescription painkillers after an injury at work, and you worry that they could squander the resources you leave behind buying medication on the unregulated market. Perhaps your child went to a casino to celebrate their 21st birthday and has since gone deep into debt indulging in their gambling habits.
If you have a loved one who struggles with some sort of addiction, then creating an incentive trust can help ensure that they won’t abuse the resources you allocated for them.
You have a family member who underperforms
Maybe one of your children dropped out of high school to pursue a fantasy career as a social media influencer and has just barely managed to scrape by for the last decade. You may want to limit how they use their inheritance to prevent them from continuing to squander their future.
You could require that the family member go back to school or maintain gainful employment to utilize the assets left behind in an incentive trust. You can also restrict what they use the trust assets to pay for or purchase.
In any situation where you worry about someone misusing their inheritance or where you want to motivate them to do better for themselves, an incentive trust might be the right tool. Learning about the different kinds of trusts can help those trying to plan their estates.
