Imagine for a second that you are in the process of creating your estate planning strategy. You and your attorney are carefully considering everything, and you are close to finally breathing a big sigh of relief because, well, your PLAN is taking shape. This truly is a great feeling, especially as you go beyond traditional planning and express your dreams, ethics, and values. One vehicle that can help you accomplish this is an Incentive Trust.
In my book, Who Gets Your Stuff When You Die, and various seminars, I discuss options that help further personalize your estate planning experience. We have written about wrinkles like Ethical Wills in the past. By the same token, adding incentives to your trust encourages your family members to model certain values and good behaviors long after you are gone.
How does an Incentive Trust work?
An Incentive Trust allows you to place provisions into your trust documents that reward certain behaviors by specifying criteria that must be met for disbursement of funds. For example, you could reward a grandchild for completing a college education. You could create markers for those who stay off of drugs or out of jail.
I have drafted Incentive Trusts that match a beneficiary’s salary simply for being gainfully employed. It is all about expressing your dreams and values, and the possibilities are endless. A few more examples include incentives for:
- Achieving certain grades
- Having a family
- Career milestones
- Charitable giving
- Starting a business
- Buying a house
- Taking care of siblings
In an Incentive Trust arrangement, the trustee’s role is even more pivotal because the beneficiary is entitled to funds only at their judgmental discretion. The trustee must meet or exceed specific requirements set out by the grantor regarding what conditions the trust’s beneficiaries must meet to receive funds from the trust.
The importance of family meetings
To further stress the importance of an Incentive Trust, we can meet with a client’s family to discuss what their parents have set up and why it is set up in this way. This is an opportunity to do two things.
- Meet the children in stress-free environments
- Letting the children know who to call when death or disability occurs
I also talk to families about how one of the stages of grief is anger and that we sometimes take that anger out on those we care about the most. It is a chance to reemphasize that it is incredibly important to their parents that there is no internal conflict after they are gone.