A trust is a legal document that can help protect assets during and after an individual has passed away. With the right trust, an estate could be protected from probate, estate taxes and disputes. Many kinds of trusts can be added to an estate plan, such as a charitable trust, spendthrift trust or a generation-skipping trust.
One trust that can help ensure an individual’s assets are being used responsibly is an incentive trust. Here is what you can do with an incentive trust:
Control how your assets are used
An incentive trust allows the grantor to make a clause. This clause can limit a beneficiary’s access to trust funds until they meet the clause. This can help prevent trust funds from being used irresponsibly. The grantor could also have the funds left in a trust used for specific matters. Here are a few examples:
- Marriage: Funds could be dispersed to a beneficiary who gets married and used for their venue, catering and clothing expenses.
- Childbirth: A beneficiary could access trust funds after they have a child and use these funds for clothing, food, daycare and school expenses.
- Education: A grantor could make an incentive trust that gives a beneficiary access to funds if they earn high grades in college or grad school.
- Employment: Trust funds could be given to a beneficiary at a rate proportional to the beneficiary’s income.
- Substance abuse: A beneficiary with a known substance abuse problem may need to take a drug test to access trust funds.
It is important to be specific when creating an incentive trust. A beneficiary may find a loophole that could allow them to abuse trust funds if a clause is too vague. However, being too specific could also prevent a beneficiary from accessing funds. Legal guidance can help draft an incentive trust.
