It is possible to set up incentive trusts to help your children.

Wealthy people have often been concerned about the difficulty of motivating children who will one day inherit money and The Economist’s 1843 Magazine recently looked at how the dilemma has been addressed over the centuries in “How to Make Inheritance an Incentive.”

One example is Andrew Carnegie who left nothing for his heirs.

Incentive trusts is a common method that can be used today.

These trusts only give money to beneficiaries when certain benchmarks are met, such as getting a college degree and getting a job with trust payments tied to salary. How well these incentive trusts work, however, is up for debate.

Oftentimes, they have the unintended consequence of punishing children for doing things their parents would actually approve. For example, by giving a child more money from the trust based on how much they earn might discourage them from taking an easy or part-time job, but the child would also be discouraged from taking a lower paying public service job.

Incentive trusts can be written in such a way that heirs are encouraged to do appropriate things, but they need to be flexible.

It can be a good idea to give the trustee some discretion to make trust disbursements in accordance with conduct the trustee thinks the parents would have approved.

An estate planning attorney can guide you in a plan that will fit your individual circumstances.

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Philip J. Kavesh
Nationally recognized attorney helping clients with customized estate planning guidance for over 40 years.
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