Posted by Dana Law Group on July 1, 2021
The average parent would probably like to leave something behind for their children in the event of their passing. We know this to be an inheritance, but we also know that isn’t always what families want to do. Warren Buffet once wrote that we should endeavor to leave a large enough inheritance to our children so that they “feel they can do anything” but not so much that they “could do nothing”.
In order to provide for loved ones, many families and individuals are turning to incentive trusts.
Upon exploring your estate planning, considering an incentive trust is a must. An incentive trust implores your heirs to meet certain standards to acquire what you have left behind for them. A common incentive trust would mandate that an heir attend and graduate school before accessing their funds.
While incentive trusts are exceedingly common, they aren’t without their flaws. Many individuals worry that an incentive trust will compel their heir to resent them, feeling like they have to accomplish some task to feel valued.
Another potential downside of an incentive trust is that it could lack context and nuance. What if your incentive mandates that your heir maintain a full-time job. Does the COVID-19 pandemic impact that incentive?
As you can clearly tell, there is a line that must be carefully threaded to ensure that an incentive trust is as effective as it is fair.
While there are certainly downsides to crafting an incentive trust, they’ve proven overwhelmingly popular for a reason. When considering an incentive trust we must understand why we are putting incentives in place. This reminder is important as it can clarify how our incentives are constructed. Do we want our children to attend school to further their education? Do we want an heir to show a certain level of responsibility before acquiring wealth?
The primary benefits of an incentive trust are simple.
To explore your estate planning goals with a professional, call Dana Law Group at your convenience.