You’ve always loved finding ways to motivate your kids. You taught them how to share when they were little, how to work and study hard in grade school and how to approach adulthood with dedication and perseverance.
You want to take that same approach with your estate planning, allowing you to motivate them even when you’re gone. You know how hard you had to work to build up your estate. You worry that leaving them the money will kill their motivation.
Incentive trusts
You may have a solution with an incentive trust. Your heirs will have to earn their money by hitting different incentives. For instance, you may provide a set payout for college graduation, or you could just match their yearly salary earnings so that they have to keep working hard every year. You can also set incentives for personal behavior of which you approve, e.g., refraining from illegal drug use or avoiding an arrest on criminal charges.
The key is to figure out what each specific heir needs most. You can then tailor a trust with incentives to help pass your money and motivation along.
Do they work?
Incentive trusts sound good in theory, but do they actually work? They certainly can. If an heir is considering dropping out of college with two semesters to go, he or she may be more likely to finish with a $300,000 payout on the line. If heirs realize they will get matching funds from the trust that correspond with their annual salaries, they may be inspired to work harder for promotions, rather than settling for a low-paying job with no chance of advancement.
Trusts do not always work, however. They may strictly lock heirs into behaviors that are not realistic.
For instance, what if an heir wants to stop using drugs or alcohol but suffers from addiction? Many experts consider addiction a disease. Do you really want to bar that person from money he or she could have used to get treatment?
Or, what if your heir suffers from an unrelated disease or accidental injury? Suddenly, he or she cannot graduate from college or get a job without months or even years of treatment. Should that person be denied an inheritance until treatment is completed, while siblings and other heirs get their payouts?
Making your estate plan
As you can see, the key is to really think through the entire process. Consider all of these potential outcomes and draft a trust that accounts for them. Set up clauses to ensure payment goes to those who deserve it. That’s the best way to make an inheritance trust that is actually going to work and accomplish what you want to accomplish.
