You want to use an incentive trust to guide the actions of your heirs after you pass away. For instance, maybe you’re worried that your son is going to quit his job and just live off of his inheritance. You don’t want to take away his motivation to work and be successful, so you want a trust that pays him only when he reports a certain level of earnings for the year. He can only get his inheritance if he keeps his job.
But is that trust going to work as intended?
One thing to consider is how your heir is going to feel about it. Will they think you’re trying to manipulate them from beyond the grave? Could this lead to resentment toward you or the rest of the family?
Another thing to consider is what may stand in the way of your son hitting those goals. What if he becomes disabled in a car accident caused by another driver? Now he cannot work and reports no income for the year. Technically, does that mean the trust should not pay out to him that year?
Or, maybe he has a family. His wife has a great job, so he decides to stay home and raise the children so that she can keep working full-time. She reports an income, but he does not. Again, does this really mean he should not get his inheritance?
These trusts certainly can work, but it is important to think through what they mean and how they are going to impact your family. With careful planning, you can create a trust that does exactly what you want it to do.