You can use many different types of trusts when doing your estate planning. One is an incentive trust. It is not nearly as common as other types of trusts, but does it bear considering?
An incentive trust essentially works by connecting an inheritance to a specific goal. For instance, a person may only get their inheritance if they graduate from college or if they maintain a full-time job. You can help to guide the course of their life, and the money in the trust gives them financial incentive to do what you have deemed wise.
The downsides of such a trust
This certainly can work, but there are some downsides to consider. One is just that it’s hard to be specific enough to address everything that may happen.
For example, say that you want your heir to hold down a job. Seems simple, right? But what if your heir wants to leave their job to volunteer in the medical field in a third-world country? They want to save lives and give back — which you would have supported — but does the trust now mean they have to give up their inheritance to do so? Or, what if they get sick, become disabled, go back to school or have to help a sick or injured loved one?
Another downside is that your heir may resent the fact that the trust forces them to live a certain way. Even if they do it, is a legacy of resentment one you want to leave?
Making your estate plan
If you’re considering trusts and other tools for your estate plan, carefully go over your legal options to determine what will be best for your family.