An incentive trust is just one type of trust that you can use when doing your estate planning. It allows you to give incentive to your heirs to reach specific goals because they will get their inheritance if they do so.
For instance, maybe you have an heir who doesn’t want to finish college. The incentive could be that they only get the assets in the trust once they graduate. Another option could be setting things up so that the trust pays the heir as much money as they earn at work every year. This gives them the incentive to work harder and earn more, propelling their career forward, as they double their annual income.
The plus side is pretty clear. A trust like this allows you to control the actions of your heirs. You can help them live a certain way and improve their quality of life. You can set up any goals you’d like, so long as they’re legal, so this type of trust is very flexible. For instance, if you have an heir who is an artist, the trust could help support their lifestyle as long as they keep focusing on their art, making it so that they can just be creative and they don’t have to worry about money.
The disadvantages start with the fact that some heirs find these trusts too controlling and intrusive. They don’t enjoy being told how to live and they may resent you for it. Additionally, the trust may keep them from an inheritance you would have wanted them to have. If the trust pays out what they earn in a year and they miss a year of work taking care of a sick relative, do you really want to give them nothing? Of course not, but the trust may cause that to happen.
Make sure you carefully consider all of your options to determine exactly what is best for your family.