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Could an incentive trust give your more peace of mind?

The people we love can go through very difficult times. Sometimes, the kinds of support they think they need aren’t actually what will benefit them the most. It can be difficult as a parent or grandparent to watch the children you love struggling with issues like a destructive marriage or a damaging addiction.

You want to offer support, but you don’t want to enable dangerous and unhealthy behaviors. You will likely take steps every day to protect your loved ones from themselves. If you intend to include a struggling loved one in your estate plan, you may worry about what an inheritance could do to them. A lump sum could be dangerous in the hands of someone with an addiction or gambling problem.

Thankfully, you have the option of creating an incentive trust as part of your last will and estate plan. A properly structured incentive trust can help you provide for even very troubled loved ones without contributing to their worst habits.

Incentive trusts create requirements for the inheritance

The structure of an incentive trust is quite ingenious. Unlike a last will, which simply allocates certain assets to an individual, an incentive trust allows the testator to create specific requirements for any dispersal of estate assets. The trustee who manages the assets in the trust will have to ensure that the beneficiaries comply with the requirements you outline before approving any disbursement of funds.

For example, requirements that people often use in their incentive trust include:

  • Finishing school and obtaining a degree
  • Getting married
  • Having children
  • Remaining in the family home
  • Completing treatment for addiction
  • Leaving an abusive spouse
  • Maintaining a job for a certain amount of time

You can structure an incentive trust in a number of different ways depending on your concerns about your heirs or beneficiaries. You can allow for only small dispersals to ensure that assets in the trust last for a long time.

Alternatively, you may provide for a lump-sum inheritance when a beneficiary meets the requirements of the incentive trust. The specific circumstances that lead you to desire an incentive trust will inform the best structure for it.

There are other benefits to an incentive trust

Like all trusts, an incentive trust provides both you as the testator and your heirs as beneficiaries with tax benefits. A significant amount of your estate can wind up exempt from federal estate taxes if placed in a trust. A trust also provides more security against unnecessary challenges from your heirs and loved ones during the administration of your estate.

If you think that an incentive trust could be a wise inclusion in your comprehensive estate plan, it’s likely time to discuss that concept with an experienced Pennsylvania estate attorney.


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