Add Balance to Your Incentive Trust

Are you thinking of using an incentive trust to give your heirs motivation as you pass your assets on to them? One of the most common ways that parents use an incentive trust is by specifying yearly payouts that are tied to employment. For instance, the child could get $10,000 per year from the trust for every year that they hold a job for all 12 months. In some cases, parents just stipulate that the trust pays out the same amount that the child earns, giving them extra incentive to work harder.

The idea behind this is simple: The trust motivates the child to work, rather than giving them money that allows them to neglect their career. However, what you’ll find is that things are rarely as simple as they appear.

What you need to do is to add some balance to the trust so that it is not quite so strict. Work in some clauses to excuse the child if they do not meet the goals.

For instance, what if your child doesn’t have a job because they’re in school? Should that cut off their inheritance? What if they quit their job to raise a family or take care of an elderly relative? What if they get sick with something like cancer or Parkinson’s? What if they get into a car accident and become disabled or suffer a serious accident at work?

The idea of a trust that offers motivation is not a bad thing, but you have to consider the realistic ways that life may play out. You can then look into all of your legal options to plan accordingly.