An incentive trust is a legal document that can be included in an estate plan. This kind of trust allows a grantor to control how their assets are used with the use of clauses. A beneficiary may need to meet the conditions of a clause before they can gain any funds from a trust.
If you are considering making an incentive trust, here are a few clauses you may include:
Marriage
If you want a child to marry, for example, you could make an incentive trust only accessible after your child is married. These funds could then be used to pay for wedding expenses.
Higher education
You may have a beneficiary that wants to go through higher education. An incentive trust could have a clause that a beneficiary must be in school before they can access any funds. This clause could also limit the access of funds depending on a beneficiary’s GPA.
Substance abuse control
A beneficiary may have a substance abuse problem. To help them recover from this illness, you could make a trust that gives them access to funds as long as they are not using any substances. The beneficiary could be barred from funds if they fail any drug tests.
Employment
A trust could give a beneficiary the idea that they no longer need to work. To prevent this, you could create a clause that limits a beneficiary’s access to funds. The clause may only disperse assets equal to a beneficiary’s income.
It is important to understand your legal options and be specific when creating an incentive trust. If the legal wording is too vague or too specific, then a beneficiary may never gain access to their trust funds. But, you may also accidentally create a loophole that makes it possible for a beneficiary to circumvent your wishes.