Wills, Trusts & Estates Prof Blog

Editor: Gerry W. Beyer
Texas Tech Univ. School of Law

Thursday, April 30, 2015

Ease Inheritance Fears With An Incentive Trust

Carrot and stickToday, many clients are concerned with structuring their estate plans to enhance the lives of their children once they become beneficiaries.  Yet simultaneously, these clients express concern that if their children receive large sums of money they will be deprived of motivation to be productive and responsible citizens.  Fortunately, an “incentive trust” can go a long way in lessening these anxieties. 

An incentive trust is a special type of trust designed to address the client’s fears that a large inheritance could harm their children’s lives.  The terms of an incentive trust are constructed to confer on the trustee the necessary discretion to make distributions to or for the benefit of the trust’s beneficiary at times and under circumstances in which such distributions would encourage or reward certain behaviors.  An incentive trust provision may direct withholding of distributions to or for a beneficiary during any period of time in which that beneficiary is not complying with the terms set out by the trustee.  For example, a provision could be designed to induce a beneficiary to refrain from tobacco use, excessive eating or other compulsive or addictive behavior such as gambling.

See Charles A. Redd, The Ultimate in Dead Hand Control—Incentive Trusts Part I, Wealth Management, Apr. 28, 2015.

Special thanks to Jim Hillhouse for bringing this article to my attention.


Estate Administration, Estate Planning - Generally, Trusts | Permalink

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