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Incentive trusts stop professional heirs

Have you ever heard of rich children referred to as "professional heirs" by their peers?

It's not a term of endearment. Generally speaking, it means these people did not do anything but inherit money from their parents. They buy homes, cars and more with that money. They don't work. They were simply given enough that they could live a life of luxury forever, burning through Mom and Dad's estate.

It's something that many wealthy parents fear. They want their kids to be driven and productive. They want them to have dreams and goals. They're worried that giving them enough money to retire at any age will just make them complacent and content. They won't accomplish anything.

Perhaps worse yet, they'll eat up the family estate instead of helping it grow, preventing it from reaching future generations. By the time the grandchildren are adults, everything that their relatives worked so hard for will be gone.

One way that some parents try to prevent this is by using incentive trusts that pay out the same amount that a child earns every year. Kids who choose not to work get nothing. Children who work part-time at low-paying jobs get a nice boost, but they can't retire. Those who remain driven and work hard get the most money, which gives them even more incentive to be productive and successful.

There are pros and cons to an incentive trust, but, if you've never considered one before, it does help to know how important it is to know about all of your legal estate planning options.

Source: The Balance, "Do Incentive Trusts Work?," Patti Spencer, accessed Sep. 01, 2017

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