Important Things To Know About Incentive Trusts

I have previously discussed how incentive trusts can be used to encourage and reward beneficiaries for good behavior.  In this column Charles A. Redd examines some of the critical elements of incentive trusts.  When setting up such a trust the client will need to make important decisions about principle and income distributions.  The Trustee would need to have discretion and latitude to make sure the named beneficiaries comply with the trust requirements.  The client would also need to determine if the beneficiaries are to receive distributions at a stated age or if the trust will last for the whole life of the beneficiary.

A provision would need to be included that gives the Trustee discretion to terminate the trust if it does not meet its intended purposes.  Exceptions would need to be carved out and the trustee would have to have broad discretion to make certain judgments.  It is necessary to select the right Trustee for such an important task.

See Charles A. Redd, Tips From The Pros: The Ultimate In Dead Hand Control—Incentive Trusts Part II, Trusts & Estates, June 25, 2015. 

Special thanks to Jim Hillhouse for bringing this article to my attention.