You may have concerns when you are planning your estate. Leaving money to a loved one can seem like a completely satisfying thing, but a windfall of money can sometimes have a negative impact. This is especially true if the person receiving the inheritance has not reached his or her full potential. It is possible to be prepared for this type of situation through the creation of a legal device called an incentive trust.
When you create and fund an incentive trust, you name a trustee to administer the trust after your passing. Many people will use a corporate trustee such as a trust company or the trust department of a bank. If you use a professional fiduciary, you can be certain that trust is managed in accordance with industry standards.
In the trust declaration, you can include stipulations that must be met before the beneficiary can receive monetary distributions. For example, if you have a loved one who has a substance abuse problem, you could require ongoing testing and/or the completion of a treatment program.
Incentive trusts can be used to steer people away from destructive behavior, but you could also guide the beneficiary toward positive life choices. For example, let’s say that you have a person on your inheritance list who is younger, and this person has not completed his or her education.
You could allow the trustee to pay for college expenses, and you could allow for ongoing distributions as long as the individual in question stays in school. It would be possible to allow for a lump sum “bonus” distribution upon graduation.
To instill a work ethic, you could allow the trustee to match the beneficiary’s earnings with distributions from the trust after the beneficiary graduates from college and embarks on a career path.
These are just a couple of examples of how you may be able to use an incentive trust, but you can include any stipulations that you want to as long as you are not requiring the beneficiary to do something that is illegal.
You should certainly consider the personal proclivities of every person on your inheritance list. There are many different ways to facilitate asset transfers, and what is best for one person may not be best for the next.
Most laypeople are not going to be aware of all of their options, and this is understandable. If you discuss everything with a licensed estate planning attorney, you can gain an understanding of your options and act in a fully informed manner.
We can help if you would like to take action. Our firm offers free consultations, and you can send us a message through this page to request an appointment: San Jose CA Estate Planning Attorneys.
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