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Be wary of trusts that are too specific and ironclad 

| Jun 8, 2021 | Trusts |

A trust, when drafted correctly, can be an incredibly effective way to leave assets to your heirs. Among other things, it provides you with an unprecedented level of control over the money you leave behind. 

However, you have to be careful not to take this control too far. A trust that is too specific and that allows no variation may not actually work as you hoped if the future doesn’t play out exactly how you’re anticipating. 

One example to consider: The incentive trust

A great example of a trust that can become problematic due to its restrictive nature is an incentive trust. The general idea is that you create a fund that gives your heirs an incentive to reach certain goals or live a certain way. When they do, they get money from the trust. For instance, you may say that they can’t collect anything until they graduate from college, giving them a strong incentive to stay in school. 

But what if they’re not able to stay in school for other reasons? Maybe they suffer injuries in a car accident that lead to a disability. Maybe they contract a serious or even terminal illness. If they can’t graduate, do you really want them to forfeit their inheritance? 

There could also be positive reasons to leave school. Maybe they start a business and it’s wildly successful, so they want to focus on running it full time. Perhaps they get an opportunity that they just can’t pass up, that you would have loved. Again, should that keep them from their inheritance? 

Thinking of the future is the whole goal of a trust

The key is to really consider the future carefully when creating a trust. Learn how to set a trust up so that it works no matter what happens in the future and fully accomplishes your goals.

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