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4 ways to use an incentive trust

On Behalf of | Mar 31, 2024 | Estate Planning

A trust can be a fairly straightforward legal document included in an estate plan that outlines instructions to distribute assets to beneficiaries. Alternatively, an incentive trust can be made to encourage a beneficiary to meet a specific clause before they access any funds.

The use of an incentive trust is multifaceted; it could be used to help ensure assets are not wasted on frivolous investments or it could be used to make someone end a bad habit. Here are a few creative uses of an incentive trust:

Encourage a beneficiary to marry

Many parents want their children to marry, which could be encouraged with an incentive trust. The trust funds could be used for any wedding expenses, such as for a venue, wedding dress, suit, etc. Or, trust funds could be dispersed upon a legal marriage. However, parents may want to consider how assets are distributed if their children do not marry.

Make a beneficiary maintain employment

A beneficiary may struggle to hold a job. An incentive trust could be used to encourage someone to maintain employment. For example, for every dollar a beneficiary makes, a dollar is distributed from the trust. 

Help further a beneficiary’s education

A grantor may believe education is highly important for a beneficiary. Much like using an incentive trust to encourage marriage, it could be used to help further a beneficiary’s education. Trust funds could be dispersed to pay tuition and student debt proportional to a beneficiary’s grades, for example. 

Discourage substance abuse

A beneficiary may have a substance abuse problem. Trust funds may only encourage a beneficiary’s substance abuse issue. An incentive trust may have a clause that states a beneficiary must not use any drugs or alcohol or the access to the funds would be suspended, for instance.

It is important to have clear legal wording in an incentive trust. Grantors may need to seek legal guidance to understand their options and review their decisions.