In a survey of high-net-worth individuals, an overwhelming majority (74%) indicated that they intend to leave money to their children.¹ Most respondents (62%) felt strongly that each generation should take responsibility for creating its own wealth.² Yet only 30% of people with estate planning documents outline specific requirements that heirs must meet to gain access to their inheritance.³

An incentive trust can help reinforce the lessons you taught your children during your life. The incentives outlined in this type of trust may encourage the trust beneficiaries to avoid temptation and sidestep certain circumstances that might be detrimental to their lives. 

You can use an incentive trust to set stipulations that would reward your heirs for making specific life choices. For example, an incentive trust might:

• Encourage heirs to seek a higher education. Money could be awarded for obtaining a degree or released to help pay for tuition and supplies. The trust could even stipulate that a certain grade-point average must be maintained.
• Supplement the income of a child who works for a nonprofit organization or family foundation. An incentive trust can also encourage heirs to start their own businesses.
• Stress the importance of fiscal know-how and money management by requiring that courses in financial education be completed before the beneficiary can gain access to an inheritance.
• Offer to match the income of an heir dollar for dollar.

Besides helping to pass on your values, trusts can also help protect your estate from probate fees and estate taxes.

The use of trusts involves a complex web of tax rules and regulations. You should consider the counsel of an experienced estate planning professional before implementing such strategies.

A legacy can be about much more than just wealth. With an incentive trust, you can leave a legacy of family values and financial responsibility.

1–3) Registered Rep, May 30, 2007

©2008 Emerald Publications