You have been diligent about planning for your future and have drafted your last will and testament. You and your spouse have both completed medical and legal powers of attorney and also filled out advanced directives detailing the extent and type of end-of-life care you wish to have.
As you complete your estate planning tasks, one idea that you may have been kicking around for a bit is an incentive trust. There are significant reasons for pondering that option — but make sure that you familiarize yourself with both the pros and the cons of an incentive trust.
What does an incentive trust do?
As its name indicates, incentive trusts incentivize your beneficiaries to accomplish certain life events like obtaining advanced degrees, maintaining gainful employment or refraining from certain behaviors or activities, e.g., getting arrested or doing illegal drugs in order to receive disbursements from the trust.
While those are just a few examples, most would agree that they are worthwhile goals to pursue. But an incentive trust can be riddled with flaws.
Why you might not want one
What if one of your beneficiaries is dyslexic or otherwise not intellectually inclined yet makes beautiful cabinetry or can diagnose and fine-tune a motor on any car around? If degrees in higher education were one of the incentives, your beneficiary would be out of luck.
The same goes for the other examples. Another beneficiary could suffer a traumatic brain injury (TBI) and be unable to work anymore, thus removing themselves from the trust proceeds. What if another beneficiary made a youthful mistake and racked up a DUI after leaving a wedding? Or another turned to medical marijuana use to cope with chronic pain?
Review all your trust options before deciding
All the above scenarios (and more) could be dealt with in properly worded incentive trust that allows for Life’s changing — and often challenging — circumstances. Learning all of your options can leave you poised to make the best estate planning decisions for you and your loved ones.