Incentives can be useful.
They are the happy side of "carrots and sticks" encouragements.
Rearing children can be challenging.
You do not want to spoil them.
You want them to grow up with strong character.
You want them to be responsible.
Some parents do have children who grow up.
Unfortunately, some parents have children who just keep having birthdays.
According to a recent FEDWeek article titled “Using a Trust as an Incentive for Your Heirs,” you can reinforce responsibility through your estate planning.
You can use an incentive trust.
What does this do?
It allows you to leave assets to your children or grandchildren while helping protect them from their own poor choices.
If you children come into a sum of money or receive distributions starting before they are "financially mature," they may not know what to do with it.
They may choose to not finish their studies or avoid work.
They may choose careless living.
An incentive trusts allows you to place restrictions on inheritance distributions.
These are essentially rewards-based distributions.
The beneficiaries will receive money for meeting certain goals, such as graduation, receiving promotions, or volunteering in their community.
If you do not want to become super detailed, you can let the trustee determine what positive behaviors warrant distributions.
If you do this, you need to select a highly-qualified and trustworthy trustee.
Who can be a trustee?
This could be a professional advisor, friend, or relative.
It may even be an institution, like a trust company.
Remember, this individual or institution must be able to remain unbiased and prudent.
You should also name a secondary trustee in case the first choice dies or is unable to fulfill the responsibilities.
This is where an institutional trustee always makes sense.
Work with an experienced estate planning attorney to create a trust to bless your children with good character not just assets.
Reference: FEDWeek (January 17, 2019) “Using a Trust as an Incentive for Your Heirs”