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Is an incentive trust an ideal part of your estate plans?

On Behalf of | Feb 19, 2021 | Estate Planning |

The use of trusts has grown in popularity in recent years. Testators use this estate planning tool to minimize tax obligations and gain better control over their assets’ distribution.

One type of these that is popular among testators is an incentive trust. Its owner can condition their payouts on the choices their child makes as they grow into adulthood. 

What’s unique about the drafting of an incentive trust?

Essentially, an incentive trust sets up a reward system: If the beneficiary accomplishes a certain goal, they’re rewarded with the assets. Many trust owners like the idea of drafting its distribution instructions to encourage someone, such as a child, to make positive choices. 

You could, for example, tie the distributions from a trust to your heir’s educational goals, require them to participate in certain charitable activities or require them to remain gainfully employed despite their wealth.

Could there be any drawbacks to this kind of trust?

A trust that’s too rigid could end up defeating its purpose. For example, maybe your entire goal is to make sure that your grandchild has the means to live an independent life — which is why you set an incentive trust up that required them to go to college. Your grandchild, however, has other talents and wants to use that money to start a business of their own. That might have been something you would have supported, but the trust could tie their hands.

Deciding between the many different trusts that exist isn’t easy. There are pros and cons of having an irrevocable or revocable one in place and choosing one type versus another. An estate planning attorney can help you draft your California will. A Burlingame lawyer can also set up a trust that reflects your wishes and desires even after you’re gone.