When you are doing your inheritance planning and you recognize the fact that your estate will significantly change the lives of your heirs, you have a lot of soul searching to do. With some of your family members who are older, stable, and established you may feel confident directly passing along whatever it is that you have earmarked for them. But when you are considering the impact that a large inheritance may have on younger family members or those who have displayed certain questionable decision making traits, the matter is not quite as simple.
One estate planning tool that is commonly used by people who have these types of concerns is the incentive trust. With these trusts you name a beneficiary like you would with any trust, but you include stipulations that your heir must meet in order to receive distributions from the trust.
For example, if you had heirs that had not yet come of age, you could set up incentive trusts that lead them toward higher education. You could stipulate that regular distributions from the trust will be made as long as they stay in school. You could perhaps offer additional distributions upon graduation, and after completion of each graduate degree.
One concern that many people of means have when they are engaged in estate planning is the possibility that their heirs will never develop a work ethic should they receive a large inheritance. A possible solution would be to set up an incentive trust that makes distributions related to monies earned by the beneficiary via his or her own labors.
These are just a couple of examples, but you can create an incentive trust with any stipulations you want to as long as they are legal. If you use your imagination the possibilities are endless, and these trusts are certainly something to keep in mind when you are trying to decide how to provide for your loved ones after your passing.
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