How can an incentive trust fit into my Indiana estate plan?
If your intention is to leave a large estate behind, you might (understandably), want to retain some control over the use of that inheritance by your beneficiaries. You may want to reward and encourage positive behavior from the same beneficiaries. To help you better understand, the Indianapolis attorneys at Frank & Kraft explain how an incentive trust might fit into your Indiana estate plan. What is an Incentive trust?
An incentives trust is a trust that distributes assets based on certain conditions or milestones established by the Grantor. The Grantor determines which behaviors, achievements or actions the beneficiary has to meet in order to receive distributions. The main advantage of an incentive trust is that it allows the Grantor to guide the actions beneficiaries even after the Grantor has passed away. As the Grantor of a trust, you may use the trust terms in order to encourage anything that you find important, as long as the action is not illegal, impossible or unconscionable. Some common “incentives” found in an incentive trust include:
Education and Personal Development:
One of the most common uses of an incentive trust is to encourage educational achievement. As the grantor, you can set up a trust where beneficiaries receive a portion of the assets upon completing a bachelor’s degree and additional distributions upon earning grad or professional certifications. For example, you might set up a trust where a beneficiary receives a portion of the assets upon completing a bachelor’s degree and additional distributions upon earning a graduate degree or professional certification.
Promoting Financial Responsibility:
- You can set conditions that require beneficiaries to demonstrate responsible money management before they can access trust funds, such as requiring them to maintain employment, save a certain percentage of their income, or avoid excessive debt. You can prevent beneficiaries from wasting their inheritance by linking distributions with responsible financial behavior. You might even structure the trust to provide annual distributions that increase if the beneficiary contributes to a retirement account or maintains a good credit score.Supporting Charitable Giving:
- You may want to incentivize beneficiaries to engage in charitable activities by making trust distributions contingent upon their involvement in volunteer work or contributions to charitable organizations. You might, for example, stipulate that a portion of the trust’s funds will be released to a beneficiary each year if they donate a certain amount of their own income to charity or volunteer a specific number of hours at a nonprofit organization.Preserving Family Values and Traditions:
- An incentive trust can be used to reinforce family values and traditions by making distributions contingent upon family involvement or participation in certain activities, such as encouraging beneficiaries to attend family gatherings, maintain family-owned businesses, or preserve family heirlooms. A trust that provides incentives can help beneficiaries navigate through difficult life events such as divorce and substance abuse. For more information, join us at an upcoming FREE seminar. Contact the Indianapolis estate planning attorneys of Frank & Kraft
- or call (317) 684-500
for an appointment. Read More!
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