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Will my heirs be motivated by an incentive trust?

One estate planning tool you may want to consider is an incentive trust. While some believe they are a form of bribery as the heirs literally receive funds from toeing the line and/or hitting designated life milestones, others benefit a great deal from the carrot-and-stick approach.

While not all heirs will need this type of structure and oversight, you know your heirs and likely have a good idea of which ones may do better with this type of trust in place.

How do incentive trusts work?

Just as the name states, they provide an incentive to encourage self-motivation and industry and discourage idleness or negative activities. An incentive trust can get quite granular and specify disbursements only be made when heirs accomplish something of merit. College graduations, acquiring advanced degrees, marriages and the birth of children all may be listed in the incentive trust as disbursement points.

Distributions can equal earned income

One of the negative perceptions of trust beneficiaries are that they are simply "trust fund babies" who spend their lives doing nothing of substance. That doesn't need to be the case. An incentive trust can be set up so that beneficiaries receive disbursements that equal their annual incomes.

In other words, rather than discouraging hard work and industry, an incentive trust can be a powerful motivating factor for beneficiaries to strive ever harder. After all, if they earn $20K a year, they can only receive $20K from the trust. But if they really hustle and earn $200K, they can rake in a total of $400K for their efforts.

It can be challenging to determine the right trust to fund for your beneficiaries. A Statesville estate planning attorney can provide guidance and suggestions that dovetail to your specific circumstances.

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