Encourage good habit with encouragement
Many of us like to think that our children and grandchildren will be responsible enough to handle a big inheritance, if we can give it to them. But the reality is that many children and young adults are not prepared for the pressures and responsibilities that come with inherited wealth. You have a way to use money as a positive motivator, to reward the old for the old for their achievements - this is informally known as an incentive trust. When used in a careful, sensitive way, this type of trust can be an effective tool to promote success in your family and reinforce the values that are important to you. Here we choose to install one, See the pros and cons of incentive trust and some important ideas to keep in mind. (Learn the basics of this estate planning tool in Select Perfect Trust.)
What is an incentive trust?
Incentive trust is a legal entity that holds and manages property for grant or for the benefit of another person.It is generally used by a senior family member to provide innovative strategies to distribute funds to younger generations. Is established; The grantor may use the provisions of incentives to reward the beneficiary for achieving a wide range of desired behaviors or goals. Trust can also determine specific requirements for how funds can be distributed and to use certain techniques. To ensure that the beneficiary will have financial freedom beyond inheritance funds.
As with any type of trust, incentives are the costs associated with the development and ongoing administration of costs. The cost and time involved in establishing this trust are only two factors, you have to consider while deciding whether this arrangement is right for you. After this, you will have to compete against some unique advantages and drawbacks of incentive benefits.
Motivating positive behavior - An incentive trust allows you to reward the beneficiary for the desired behavior, while involuntary behavior such as unqualified or immoral activity (that is, "immoral" can be quite subjective). Many trusts can be restrictive because the grantor wants them, as long as the restrictions imposed are not illegal - for example, specifying that the beneficiary must divorce to get an inheritance to their current spouse.
Age restriction - Restrictions related to the age of the beneficiary are often associated with the trust. You may not want your child to receive income or principal from the trust until he or she reaches a more mature age, such as 25, 30 or whatever you You can also plan for the distribution of funds from time to time in different "benchmark" epochs to determine how your child can manage money responsibly. At the very least, this strategy eliminates the possibility of your child blowing away their inheritance at once.
Encouraging Education - Trust Distribution Beneficiaries graduating from high school can count on achieving some grade point average or obtaining a postsecondary degree. You may also decide to distribute a portion of the fund after a successful semester or academic years as a motivational tool.
Promoting a Healthy Lifestyle - Some grantors will establish trusts that beneficiaries are involved in destructive and / or illegal behaviors such as smoking, using illegal drugs, or abusing alcohol will not pay money.
Family Business or Employment - Your incentive trust may include provisions that can reward your beneficiary for handling important responsibilities in the family business or for maintaining a profitable employment. Another way to promote employment. In form, you can establish incentive trust to pay a matching amount for each dollar earned by the beneficiary. These are strategies that often appeal to wealthy parents, who may worry that their children lack a work ethic as they have grown up with money.
Confirming Philanthropy - You can help your child develop an appreciation for volunteering and community involvement by using meaningful and donating donations and other benefits that teach your child, community service and other charitable habits Reward for
Potential dissatisfaction - You are saying that "the streets of hell are covered with good intentions"? Regardless of your best intentions, your beneficiary may find that some of the requirements in the incentive incentive (say, getting a college degree) are unapproachable to him, and this may cause you to dissent in the form of a grant or other beneficiaries Have met certain requirements contained in the trust
Entrepreneurship Hindus - Using incentive trust to encourage specific business goals or push your child into the family business impedes your child's ability to pursue his or her business interests, such as starting a successful landscaping business or someone In other business you can ignore
Setting Unrealistic Goals - Keep Goals and Milestones Realistic: Some children are not meant to run a family business or drop out for an Ivy-League school and stellar academic career. The grunter must be sensitive to the unique personalities of the beneficiaries and set goals that are attainable for all. Ignoring Other Requirements -
Too much emphasis on business and educational achievements can lead to other matters, such as the health and personal well-being of the overall beneficiary, being ignored. "Controlling life from the grave" -
Confident trust can fail to serve as a positive motivational tool if you want the beneficiary to feel that you are trying to control your life to "grave" or to apply the values that the beneficiary feels Growing up, they should have taught. Headlines
If you decide to establish an incentive trust for your heirs, you should use great care when drafting the required documents; Ensure that they provide a degree of flexibility to accommodate changing conditions and unintended effects. For example, you should ensure that the trust provisions do not penalize beneficiaries who are home-to-parent or those pursuing low-income businesses. As a safety net, the trust must provide the beneficiary with the ability to support a family, even if it fails to achieve some of the goals set in the trust. Of course, the trust's provisions must also comply with federal and state requirements
The key to success of an incentive trust is good communication: Make sure you discuss the trust's intentions and restrictions with the trustee (the person or organization managing the trust) and the intended beneficiary. To effectively enforce the provisions the trustee must clearly understand your intentions, while the beneficiary must be aware of his wishes before you die so that he can recognize bribe distribution rather than bribe. (Selecting the trustee is an important step in estate planning. Find out more at Can You Trust Your Trustee?
) Conclusion> As the creator of incentives, seek the counsel of trusted advisors to help you develop the most appropriate plan for your trustee wisely and based on your family values. When used in a controlled, insensitive manner, an incentive trust can backfire, resulting in the exact opposite of what you intended. However, used properly, incentive incentives can encourage higher education, philanthropy, a strong work ethic, healthy living and sound financial planning and prevent misuse of funds. That way, you can pass on someone more valuable than money to younger generations of your family - you can pass on valuable life lessons (don't know where to start? Check out our Estate Planning Basics tutorial
To read more on trusts, see Setting up a non-performing trust,
Moving Life Insurance Ownership and Getting Started on Your Estate Plan