Shalloway and Shalloway, P.A.

Incentive Trusts Provide Motivation to Heirs

A document of estate planning

While planning your estate, you may be on the hunt for ways to retain as much control as possible over how your hard-earned funds are distributed after your passing. You may want to use your estate funds as a way to inspire your heirs and loved ones to create a thriving professional life for themselves, and not to simply rely on trust funds for their support. Incentive trusts are a tool that can be used to motivate certain behaviors, as well as dis-incentivize undesirable ones.

Incentive trusts allow the trust’s creator to condition distribution of funds from that trust only where the beneficiary has achieved certain goals or avoided certain behaviors. The trustee you choose will have the role of ensuring that those goals are met, and the trustee can be allowed to hold a great deal of discretion in determining when that is the case.

Incentive trusts are commonly used to motivate beneficiaries to obtain an education. Trust makers can choose to distribute trust funds to pay for either a college degree at a certain type of institution where the heir earns a certain minimum grade average, or to only distribute a gift after a degree has been obtained. The trust could even be conditioned on obtaining a certain type of education, such as a medical degree.

Another common incentive for such trusts is professional development. Incentive trusts can condition distribution on a beneficiary holding gainful employment, or can structure distribution so that the beneficiary has their earnings matched $1 for $1 by the trust. The trust can be used to sustain a family business by only paying out funds where a beneficiary decides to take over that business, or can be structured to pay out additional funds where an heir enters a low-paying field, such as social work. Incentive trusts can also be used to motivate moral objectives by conditioning payment on an heir staying off illegal drugs, or on the heir getting married.

Some critics of incentive trusts note that these trusts can end up being very rigid in the behavior they require of beneficiaries, possibly to the heir’s detriment. For example, a trust that incentivizes education by paying for any degree which an heir wishes to obtain could end up motivating that heir to stay in school as long as possible without developing a career. The trustee could end up in a difficult situation if the trust bars distribution to an heir who is on drugs, but that heir has a serious addiction and no other source of income outside of the trust. Choose your Florida estate planning attorney carefully, in order to draft a trust that carries out your wishes, while allowing flexibility for unknown future events.

For assistance in creating an estate plan in Florida that will stand up to court challenges and provide for your heirs in the way you desire, contact a knowledgeable and experienced West Palm Beach wills and estates attorney at Shalloway & Shalloway, P.A. for a consultation, at 561-686-6200.

Shalloway & Shalloway, P.A., is located in West Palm Beach, FL and serves clients in Palm Beach, Broward, Dade, Okeechobee, Martin and St. Lucie Counties.

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