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The unintended consequences of incentive trusts

An incentive trust may help you ensure that your heirs act responsibly after you pass away. For instance, popular sought-after behavior includes things like getting a job, starting a company or graduating from school. Others involve family, as the trust could pay out extra if the heir gets married or has kids.

This is a good tool to use if you think that young, irresponsible heirs may waste your assets quickly. Some parents are concerned that frivolous purchases could burn through all of the money in a year, when it should have lasted for life.

That said, incentive trusts can have unintended consequences. If you draft one, make sure you are specific and that you consider possible complications -- and solutions to those problems.

For instance, perhaps you want a trust saying your child only gets paid upon graduation from college. What if your child can't afford college in the first place? What if your child develops a learning disability and isn't able to graduate? What if your child is physically injured or drops out of college to care for a spouse or another family member who is disabled? What if your child starts a business and it's a wild success, so he or she leaves college to run the company?

The incentive trust may wind up "punishing" that child for doing something that you actually would have felt good about, but you won't be there to voice your opinion. Make sure the trust accounts for that and that your actual intentions -- that your child doesn't just drop out to lazily live off of your money -- come through in the wording. Be very careful to look into all of your legal options and understand the full ramifications of every document you create.

To learn more about incentive trusts, call the Quinn Law Firm at 814-833-2222 and request to speak with one of our estate planning attorneys.

Source: Huffington Post, "How Incentive Trusts Can Motivate Your Heirs," Jim T. Miller, accessed Feb. 27, 2018

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