Legal Blog
The Weekly Scenario: What Is An Incentive Trust?
Question: What is an incentive trust?
Answer: Incentive trusts are in large part what they sound like; namely, trusts that give beneficiaries an incentive to act, or not act, in a particular way.
I find that interest in these types of trusts, in general, arise from people who want to ensure the well being of a child or other beneficiary as opposed to an intent to penalize.
In using incentive type trusts as part of the estate plan, the hope is to motivate a beneficiary to achieve a goal or objective of the person establishing the trust for them. Examples might include making honor roll, graduating from college, maintaining a perfect GPA, or even getting married. By contrast, beneficiaries with substance abuse problems or difficulty staying in school may risk losing the ability to request disbursements from a trust (this is the disincentive).
Do incentive trusts work?
It depends. I admit that these types of trusts can work, but situations can change rapidly and can be totally unpredictable by the time the trust comes ‘on line’. A grandparent who tries to incentivize a child and get them through college may be disappointed when college wasn’t the best plan and going to trade school or something else may have been a better option.
Comment: A better approach to an incentive trust may be to name a trusted individual with good judgement who can manage a trust using their discretion in making distributions to the trust beneficiaries.
As always, if you have any questions or would like to learn more, please contact Steve Shane at sshane@offitkurman.com or .
ABOUT STEVE SHANE
Steve Shane provides strategic counseling to clients in need of estate administration, charitable giving and business continuity planning while minimizing estate, gift, and generation-skipping transfer tax exposure. He offers legal guidance to clients on asset protection and the proper disposition of assets in accordance with the client’s objectives, while employing tax planning techniques such as the use of irrevocable trusts, life insurance planning, lifetime gifts and charitable trust. He is also experienced with drafting documents for business planning, the incorporation and application for exemption for Private Foundations and the administration of decedents’ estates.
ABOUT OFFIT KURMAN
Offit Kurman is one of the fastest-growing, full-service law firms in the Mid-Atlantic region. With over 170 attorneys offering a comprehensive range of services in virtually every legal category, the firm is well positioned to meet the needs of dynamic businesses and the people who own and operate them. Our twelve offices serve individual and corporate clients in the Virginia, Washington, DC, Maryland, Delaware, Pennsylvania, New Jersey, and New York City regions. At Offit Kurman, we are our clients’ most trusted legal advisors, professionals who help maximize and protect business value and personal wealth. In every interaction, we consistently maintain our clients’ confidence by remaining focused on furthering their objectives and achieving their goals in an efficient manner. Trust, knowledge, confidence—in a partner, that’s perfect.
You can connect with Offit Kurman via our Blog, Facebook, Twitter, Google+, YouTube, and LinkedIn pages. You can also sign up to receive Law Matters, Offit Kurman’s monthly newsletter covering a diverse selection of legal and corporate thought leadership content.
MARYLAND | PENNSYLVANIA | VIRGINIA | NEW JERSEY | NEW YORK | DELAWARE | WASHINGTON, DC
