Incentive Trusts provide a series of carrots and sticks that are tied to Trust distributions to both encourage positive behavior and also discourage behavior that is negative. A person should use care when creating an incentive trust because attempting to control too many aspects of an heir’s life can be counterproductive. It is important to be realistic when thinking about what conditions to place on incentive trust distributions. Some people might consider “staggered” distributions that place age restrictions on when the distributions take place so that a person that might be irresponsible with money will not receive the distributions all at once. Another type of incentive could involve creating matching funds to encourage an heir to go out and earn more. There are other incentive trusts that people set up to encourage heirs to stay away from drugs and alcoholism.
See Kyle E. Krull, What Is An “Incentive” Trust?, Wealth Management, November 12, 2015.
Special thanks to Jim Hillhouse for bringing this article to my attention.
