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Monday, July 15, 2019

What Is an Incentive Trust?

You may have spent some time considering who you want to receive your assets when you pass away. You may also have spent some time wondering and worrying about what that person or those people who receive your assets will do with them once they inherit them. It can put you in a difficult position when you want to leave a family member or loved one a portion of your estate, but worry about the impact a lump sum financial gain will have. What if the inheritance disincentives finding and sustaining gainful employment? What if all of the inheritance is squander all too quickly? If these kinds of concerns have been on your mind, it is time to consider establishing an incentive trust.

What is an incentive trust?

An incentive trust is a trust that imposes requirements on the trust beneficiaries, which must be fulfilled for them to receive distributions of trust assets. The requirements can be found in the trust document. The trustee is tasked with observing the requirements and ensuring the beneficiaries are compliant with said requirements before making any distributions from the trust. An incentive trust, when properly drafted and enforced, can not only preserve the assets held in trust, but can also ensure that the grantor’s wishes for the trust assets and the beneficiaries are upheld.

The terms of the incentive trust will depend on the wishes of the grantor expressed in the trust document. If you, as the grantor, are worried about the college performance of your beneficiaries, you can impose a requirement that the beneficiaries complete college prior to receiving trust distributions. You may also establish a requirement that they maintain a particular GPA. If you are concerned that receiving trust distributions would discourage your beneficiary from maintaining employment, you can make maintaining consistent employment a requirement for trust distributions.

When establishing an incentive trust, be aware that imposing requirements on beneficiaries is not without its limits. If a court finds a requirement to go against public policy, the conditions of the incentive trust will be found void. Because of this, exercise due caution in establishing an incentive trusts. Restriction on things such as marriage, among other things, will likely be viewed unfavorably by a court of law.

There are also privacy issues that come up with regard to incentive trusts. If you wish to require your beneficiary to submit to and pass regular drug testing, then there may be issues regarding privacy and medical records. In addition to potential privacy concerns, there are also tax consequences to consider. The amount and timing of trust distributions have the potential to carry serious tax consequences. Be sure to factor this in when establishing the terms of the trust.

Creating Incentive Trusts to Preserve Your Wishes Far into the Future

We want the best life for our loved ones even after we pass away. It is a discouraging thought to think that an inheritance could have adverse consequences on the lives of those we care about. A well-drafted incentive trust can help manage the impact of an inheritance on your intended beneficiaries. Monk Law Firm will consult with you on your wishes and be dedicated to preserving those wishes as best as possible in your estate plan. For all of your estate planning needs, contact us today.


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| Phone: 803-594-4453
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| Phone: 704-369-9977

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