An Incentive Trust Can Provide Dual Benefits

As a layperson, you are simply not going to know about all the different legal devices that can be used when you are planning your estate. This is understandable, because we do not have professional expertise outside of our field.

When you discuss all of your options with an attorney, you can make fully informed decisions.

Estate planning is a profoundly important endeavor, and it is not something that should be taken lightly. There is no reason to use guesswork, or settle for something that is less than ideal, when the perfect solution exists.

With this in mind, we will look at incentive trusts in this post.

Provide Financial Resources and Invaluable Guidance

The best way to explain the effectiveness of this estate planning tools is to use a hypothetical example. Let’s say that you are planning your estate, and you are going to be leaving an inheritance to a young loved one that has not attended college.

You could establish an incentive trust and make this family member the beneficiary. For the purposes of this example, we will say that you decide to use a trust company to act as the trustee. This can be the right move with an incentive trust, because there would be completely asset dispassionate management.

In the trust declaration, you can leave behind instructions that the trustee would be required to follow. You could allow for the trust to cover college tuition, and you can also provide living expenses as long as the beneficiary remains a student in good standing.

There could be a bonus distribution upon graduation, and you could increase the benefits if the student decides to attend graduate school. To instill a work ethic, you could then allow for a dollar for dollar salary match after graduation.

It would be possible to allow the trustee to make discretionary distributions along the way when certain circumstances arise. Ultimately, you might choose to allow the beneficiary to receive larger lump sum portions of the trust when they reach certain age plateaus.

The incentives can lead someone toward positive actions in this manner, and the stipulations can also swing in the other direction. If you have a loved one that has traditionally struggled with a substance abuse problem, you can provide incentives to stay clean and sober.

These are a couple of examples of the way that an incentive trust can be structured, but the possibilities are endless. As long as you don’t require the beneficiary to do something illegal, the way that you proceed is entirely up to you.

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