Kansas and Missouri Estate Planning

What is an "Incentive" Trust?

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.

How so?

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”

How can I Protect an Inheritance from Opiod Addiction?

Addiction affects more than the addict.

Your heart is breaking.

Opioids have destroyed your family.

Perhaps have they have taken control of a loved one.

How do you love them, yet take steps to protect them and you?

According to a recent MarketWatch article titled “How to leave money to a family member with an addiction,” estate planning is essential to doing this well.

You have tried to help your child.

You have gotten them treatment.

Still, they return to the drugs each time.

What more can you do?

Protect them from their inheritance.

Coming into an unprotected windfall of money would only provide resources for purchasing even larger quantities of drugs.

Do you have to completely disinherit them?

No.

You could create a trust.

This can provide accountability and direction for the use of the funds.

You can even provide incentives within the trust to encourage healthy behaviors.

How so?

You can require the passing of drug tests or entering a residential program before the child can receive any funds.

There also can be negative consequences in place for poor behavior.

Think of this as providing "carrots and sticks" to encourage and protect your addicted loved ones.

Do not attempt to create an incentive trust alone.

You will need the help of an experienced estate planning attorney who has worked with addiction-related issues.

When selecting a trustee, you should choose someone who is not easily manipulated and who is trustworthy.

Even if the addict is aggressive, your trustee should be able to remain steadfast.

In fact, an institutional trustee may be a perfect solution.

Will there be requirements from the beneficiary?

Often yes.

Your beneficiary must adhere to specific terms.

Your child may need a HIPAA waiver for the trustee to monitor his or her medical history.

Addiction brings many challenges and hardships.

A trust can help provide peace of mind for you and your loved ones.

Reference: MarketWatch (January 14, 2019) “How to leave money to a family member with an addiction”

What is an Incentive Trust?

An incentive trust is one way to influence your heirs (for the better) after you have passed away.

You are working on your estate plan.

However, you come across one issue.

Your heirs are irresponsible.

You do not trust them with an outright inheritance.

What can you do?

According to an article in The Norman (OK) Transcript titled “Incentive trusts can motivate your heirs to better themselves,” an incentive trust could be a great option for you.

Why?

You can provide for your heirs, but the qualifying for the money is their responsibility.

How?

By putting your money for certain heirs into an incentive trust, you can set stipulations regarding disbursements.

What king of stipulations?

The heir could receive the inheritance if he or she accomplished something, such as graduating from college or holding a job.

Similarly, you could require the heir to abstain from something, such as drugs or alcohol.

If the heir refuses to stay clean, you can send payments directly to rehab rather than the heir so the money is allotted for recovery rather than fueling his or her addiction.

Still, incentive trusts may raise issues you do not want in your estate plan.

Examples?

An incentive trust could unduly hurt an heir if a stipulation called for full-time employment ... but serious illness or a major accident took away his or her ability to meet this criteria.

Also, if you try to include an incentive to force a specific religion or nullify a marriage, your estate plan could be dismissed by a judge.

When creating an incentive trust, you may want to include provisions giving the trustee freedom to make discretionary decisions concerning your trust and its terms.

Ultimately, you will need to work an experienced estate planning attorney to draft a trust to meet your needs.

So, how do you find an "experienced" estate planning attorney?

First, ask around. Friends, family and other professional advisors are trustworthy sources.

Second, conduct an "organic" search on "Google" for "estate planning" near you (e.g., "Estate Planning Anytown MoKan").

Third, either way, verify! Check out the education, experience, ratings and client reviews of any attorney before you contact him or her.

How?

Two helpful online resources are just a mouse click away to assist with your due diligence:  Avvo.com and Lawyers.com.

Check any Avvo ratings, client ratings/testimonials and attorney endorsements on Avvo.com and any "peer ratings" by judges/other attorneys and any client ratings/testimonials on Lawyers.com.

In fact, I use both of these services to thoroughly vett attorneys before referring members of our "client" family for legal help in other areas of law or for matters in jurisdictions outside Kansas or Missouri.

Remember: “An ounce of prevention is worth a pound of cure.” When making your financial, tax and estate plans, do not go it alone. Be sure to engage competent professional counsel.

For more information about estate planning in Overland Park, KS (and throughout the rest of Kansas and Missouri), visit our estate planning website and be sure to subscribe to our complimentary estate planning e-newsletter while you are there.

Reference: Norman Transcript (November 1, 2016) “Incentive trusts can motivate your heirs to better themselves”

What is an "Incentive" Trust?

Just like it sounds. 

And most likely B.F. Skinner's estate plan included incentive trusts (or, at least, it should have).

An "incentive" trust provides a series of "carrots and sticks" tied to inheritance distributions to encourage positive behavior and dissuade negative behaviors.

See, I actually went to a few (very few) of those Psych 101 lectures my freshman year at KU!

I digress.

So, how do you help make sure an inheritance is a blessing and not a curse for your loved ones?

The Greater Wilmington Business Journal took up this topic in a recent article titled “Trusts Can Include Incentives For Heirs To Act Responsibly.”

Bottom line?

You must use care when creating an incentive trust. 

Attempting to control too many aspects of an heir’s life can be counterproductive.

Some call it trying to “rule from the grave.”

Common examples “incentives” include completing a certain degree or entering a certain line of work. 

Problem: What if the incentives create a classic "lose-lose" scenario?

What if you require your grandson to become an artistic working in watercolor pastels of New England landscapes, but he is a nuclear physicist with an impressive collection of velvet Elvis art?

Not good.

Nonetheless, where a clear pattern of negative actions exists, the right incentives can encourage an heir to make better life choices.

Think substance abuser or a video game slacker. 

Again, it is key that you be realistic.

For some, the promise of inherited money may not be enough to overcome a pattern of severe substance abuse.

However, the threat of giving the inheritance to charity if specified incentives are not met might do the trick. 

In addition, the original article recommends attaching age restrictions. 

What if you have a loved one who is absolutely irresponsible with money?

Consider creating a trust structured to control access as to "when" and "how much" regarding distributions of principal.

So-called "staggered" distributions can mitigate the "blow it all at once" temptations.

In addition (or alternatively), set up a "matching funds" program.

Here is how it works: For every dollar earned on a W-2 Form, a matching dollar is distributed from the incentive trust.

This can encourage development of a "work ethic" and reduce the risk the beneficiary will see himself or herself as a "trust fund" brat.

What about helping an addicted loved one get straight?

Tie the inheritance to getting and then staying clean through random drug testing.

Yes, a little tough love can go a long way ... like for generations.

In the end, while some may be tempted to disinherit a wayward loved one, an incentive trust can work as an escape clause.

Your prudent estate planning just might be the incentive to helping a loved one turn his or her life around.

Remember: “An ounce of prevention is worth a pound of cure.” When making your financial, tax and estate plans, do not go it alone. Be sure to engage competent professional counsel.

For more information about estate planning in Overland Park, KS (and throughout the rest of Kansas and Missouri), visit our estate planning website and be sure to subscribe to our complimentary estate planning e-newsletter while you are there. 

Reference: Greater Wilmington Business Journal (November 1, 2015) “Trusts Can Include Incentives For Heirs To Act Responsibly”