Is an incentive trust a good idea?

As part of your estate planning, you may be considering an incentive trust. This is a trust that allows you to create incentives for your heirs in order to get the money. A common example is saying that an heir can’t get their inheritance until they finish school or as long as they have a job.

You can see the clear benefits of a trust like this, as it may help you guide your heirs through life even when you are no longer around to do so. But is it wise? Are there any downsides to consider?

Two main downsides you should keep in mind

When deciding what to do, one thing to consider is how your heir is going to feel about the trust. Will it inspire them to do their best, or will they just resent you? If other heirs don’t also have incentive trusts, will they resent those family members? You may have good intentions, but you do want to think about the legacy you’re leaving behind.

Next, you have to consider why your heir may fail to meet those incentives. For instance, perhaps they’re supposed to have a job to get the yearly payments from the trust. But they get sick, and they spend that year in the hospital and recovering at home. They’re unemployed, but do you actually want to keep them from money that they could really use at a time like that?

Setting up your estate plan

You can see that there are a lot of things to consider with estate planning documents. Be sure you know what options you have to accomplish the goals that you have for your estate. It’s always helpful to get early legal guidance when you’re making your estate plans.