Incentive Trusts: An Overview

An “incentive trust” is a legal entity that holds and manages assets such as money or property for a benefactor. Basically, it is a trust that can conditionally reward a benefactor for reaching a certain goal or behaving in a certain way. This can be quite useful for someone with a large inheritance who wants to ensure that their children or grandchildren are responsible enough to manage it, as well as encouraging positive behavior. Incentive trusts are often created by individuals who want to instill a productive work ethic in their children.

Restrictions in an Incentive Trust

The grantor can make an incentive trust as restrictive as they want it to be, barring any sort of illegal requirements. You can set an incentive trust to pay out at a certain age, either in a lump sum or in installments. Planning to distribute funds in a staggered fashion over time can encourage your children to responsibly handle their money, as well as preventing them from squandering their inheritance quickly. Additionally, you can choose to have your children only have access to your money by achieving some sort of educational requirement, such as graduating high school.

A grantor can set an incentive trust to promote healthy lifestyles, ceasing payments to the benefactor in the event that they engage in destructive behaviors, such as drug or alcohol abuse. To encourage a positive work ethic, terms can also be set to pay a matching amount for every dollar that a benefactor earns through employment.

If you are interested in creating an incentive trust, a Santa Clarita estate planning attorney from the Werner Law Firm can help your establish its terms. Over the course of nearly 40 years, our firm has won several awards for our excellence, including a “Best of SCV” award from The Signal newspaper for the past five years in a row. Contact our office today for afree consultation!

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