When you use your will to leave someone an inheritance, you don’t have any say in how they use it or what it accomplishes. You’re simply leaving them a specific asset. It becomes their possession after you pass away, and the estate goes through probate.
But if you want to do more to guide your beneficiaries, you may want to use a trust. One example is an incentive trust. Below are two examples of how this can be used.
1. Getting them to accomplish specific goals
First of all, consider if there are any specific goals that you would like to put in front of your beneficiaries so that they will be motivated to take certain steps. For instance, perhaps you have always valued education and would like a certain beneficiary to go to college and receive their degree. Instead of giving them an inheritance directly, you can put it into an incentive trust that they’re only allowed to access after graduation. If they don’t get a degree, they give up their claim to the money.
2. Getting them to continue working
For wealthy parents, a common concern is that adult children will take their inheritance and stop working at their own careers because they can simply live off the money they inherited. But you can use an incentive trust to ensure that they keep working. For instance, maybe they can only access the trust as long as they are gainfully employed, or perhaps they can only take annual withdrawals that are equal to the value of their yearly earnings.
Incentive trusts are certainly not the only type of trust you can use, so it’s important to carefully consider all of the options you have when making your estate plan.