There are many tools in the estate planning toolkit, so you never have to settle for an arrangement that is less than ideal. As a layperson, there is no reason why you would understand all the different steps that can be taken.
An estate planning lawyer can explain your options to you, and this is why legal assistance is invaluable. With this in mind, we will be looking at some of the legal devices that can be used to satisfy specific aims in some upcoming posts, and we will start with the incentive trust.
Loving Guidance
If you leave a loved one an inheritance that can have a life changing impact, they could choose a path that is detrimental in some way. For example, someone that hasn’t attended college may decide that it’s not necessary because they will go through life with a financial underpinning.
You can respond to a circumstance like this one through the creation of an incentive trust.
To continue with this example, you could fund an incentive trust and name the young family member as the beneficiary. You would also designate a trustee to administer the trust. This can be any adult that is willing to accept the role, but you can alternately use a trust company or the trust department of a bank.
In the trust declaration, you can include stipulations that must be met before the trustee would be authorized to make distributions to the beneficiary. You could instruct the trustee to pay tuition and fees and cover living expenses as long as the beneficiary is a student in good standing.
You could go on to offer a lump sum bonus as a graduation reward. You could sweeten the pot with regard to the amount of the distributions if the beneficiary attends graduate school.
To instill a work ethic, the trustee could be given the directive to match every dollar that is earned on the job by the beneficiary after graduation. Ultimately, you can allow for large lump sum distributions when the beneficiary reaches certain age thresholds.
This type of trust can also be used to guide someone away from self-destructive behavior. For instance, a beneficiary with a substance abuse problem could be required to complete a treatment program and submit to periodic testing.
These are a couple of basic examples that demonstrate how an incentive trust can be used, but you have broad latitude. You can essentially include any stipulations as long as you are not requiring the beneficiary to do something that is illegal.
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- Top 5 Reasons to Use a Living Trust - March 22, 2023
- Can I Give Inheritances While I’m Living to Avoid Estate Taxes? - February 17, 2023
