When you do your estate planning, one option that you might be pondering is an incentive trust for your heirs. These types of trusts operate on the carrot-and-stick philosophy, i.e., the “carrot” is the money the beneficiaries will receive if they comply with the terms of the trust, while the “stick” represents the lack of disbursements should they fail to meet the terms of the trust.
Since you presumably love your beneficiaries and want to enrich their lives, you may feel that this is the best way to ensure that they lead productive and meaningful lives. But there could be scenarios for which you failed to plan.
How incentive trust could fail your heirs
Your heart may have been in the right place when you drafted your incentive trust. After all, there is nothing wrong with encouraging your heirs and beneficiaries to obtain advanced degrees and/or work in high-paying positions or to marry and have a family. Yet that type of dead-hand control can backfire.
For instance, your beneficiaries may lack the intellectual capacity to pursue an advanced degree — or any degree other than a trade school certificate. Even if they do, circumstances like a serious car accident could leave them with cognitive deficits that derail any plans for post-secondary education. A child may choose not to marry or be unable to bear children (or simply not want them).
You can plan well and still include trusts
By working with an estate planning professional, you will be able to plan for the above or other contingencies. The trustee whom you appoint to oversee the trust and its disbursements should be someone you trust to be both fair and compassionate to avoid fomenting dissension among your heirs. By taking the time now, you can head future problems off at the pass.