An incentive trust gives you a chance to provide your beneficiary with specific goals. Maybe they can access the trust after they graduate from college. Perhaps they can only access it as long as they’re gainfully employed. These trusts are often used to influence behavior.
In some cases, these incentive trusts can be very helpful. They may help a beneficiary achieve certain goals or promote the right type of lifestyle—at least in your eyes, as the creator of the trust. But there are some potential downsides to keep in mind.
Beneficiaries may be resentful
For one thing, many beneficiaries view incentive trusts as controlling, and they may be resentful of this. They feel as if the trust is forcing them to live a certain way, which may go against what they actually want. They would rather just have access to their inheritance directly.
Circumstances may change
It’s also important to note that some incentives or goals that are provided may not be realistic. A person’s situation can change significantly.
For example, say that the incentive trust states the person can only withdraw as much money as they earn in any given year—an arrangement designed to promote hard work in their career. But what if that person suffers a disabling injury or illness and can no longer work? Does this mean they’re not allowed to access their trust? That may not be what you intended at all, and you may prefer that they use the money to cover their costs or pay for medical treatment.
In other words, it’s often best for a trust to be a bit flexible. Incentive trusts are also not the only type of trust you can set up, so make sure you carefully consider all of your legal options when deciding how to proceed.
