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Should I use an incentive trust?

On Behalf of | Nov 8, 2022 | Estate planning

There are many different types of trusts that you can use in your estate planning, and one of these is known as an incentive trust. As the name implies, this is a trust that you set up to give incentives to your heirs to do (or not do) certain things.

These are certainly not used by everyone, but they can be very useful tools in certain situations. Let’s take a look at a few of the reasons why you may want to use an incentive trust.

You want your heir to continue working

One reason people use this type of trust is simply that they are afraid that leaving a large inheritance to someone will cause them to stop working. They do not want to take away that person’s drive to be successful and productive, so they set the incentive trust up in a way that pays out the same amount of money every year that the individual earns.

This makes it so that they have to continue working in order to access the money in the trust, but it also doubles their income, which can make for a very comfortable lifestyle.

Your heir is involved in the arts or with charitable organizations

Another potential reason to use an incentive trust is if your heir is an artist or likes to work on passion projects that don’t necessarily pay a lot of money. The trust can be set up to support them as long as they continue to make that art.

This provides an excellent way to show your support both for your heir’s passion and the arts as a whole. Many great artists were only successful because they had patrons who provided financial support.

You do not want to take away their motivation

Financial motivation is a big driver in American life, and there are those who worry that they would take that from their child by leaving them enough money to retire.

An incentive trust helps them to retain this motivation and strive to improve their situation, while still benefiting from the money that you’re leaving them.

If you want to know how to use this or any other trust, consider all of the legal steps you will need to take to meet your family’s future needs.