How Can I Encourage a Beneficiary to Use an Inheritance Wisely?

Knoxville trust attorneys

To create a successful estate plan that accomplishes everything you want it to, you will likely need to incorporate a wide range of interconnected estate planning tools and strategies into your plan. One of the most common additions to a comprehensive estate plan is a trust agreement. An incentive trust is a specialized type of trust. To help you decide if an incentive trust is right for your estate plan, the Knoxville trust attorneys at Stivers Law explain how an incentive trust might fit into your estate plan.

Trust Basics

A trust is a relationship whereby property is held by one party for the benefit of another. A trust is created by a Settlor, also called a Maker, Grantor, or Trustor who transfers property to a Trustee chosen by the Settlor. The Trustee holds that property for the trust beneficiaries. All trusts can be broadly divided into two categories – testamentary or living (inter vivos) trusts. Testamentary trusts are typically activated by a provision in the Settlor’s Last Will and Testament and, therefore, do not become active during the lifetime of the Settlor. Conversely, a living trust activates during the Settlor’s lifetime. Living trusts can be further sub-divided into revocable and irrevocable living trusts.

What Is an Incentive Trust?

The term “incentive trust” is an informal name given to a trust that encourages good behavior by the beneficiaries of the trust. Usually, an incentive trust is a revocable living trust; however, you could also use a testamentary trust or even an irrevocable living trust. A revocable living trust is usually chosen though because it offers you the ability to modify the terms of the trust while you are still alive. The terms of the trust are what make it an incentive trust because those terms are used to guide the behavior of the beneficiaries. A beneficiary will only receive disbursements if he/she does something, or refrains from doing something, that the Settlor deems important. For example, a beneficiary might only be entitled to receive disbursements from the trust if he/she maintains a specific grade point average in school. One of the primary benefits of creating a trust is the ability to create the trust terms. As the Settlor, you can include any terms you wish if they are not illegal, unconscionable, or impossible to fulfill.

Why Include an Incentive Trust in Your Estate Plan?

Although we would all like to believe that our children, grandchildren, and other beneficiaries will do the right things and make the right choices with the inheritance we leave them, the reality is that sometimes they need incentive in the form of an incentive trust. Ways in which you might encourage your beneficiaries to do the right things and make the right choices through the use of an incentive trust include:

  • Education. If higher education is important to you, your trust could require a beneficiary to attend a specific school, major in a specific field, maintain a specific G.P.A. or graduate by a specific age.
  • Addictions. If a beneficiary has a history of alcohol, drug, or gambling addition, you could make distributions contingent on staying away from the vice.
  • Family. If continuing your bloodline is of great concern to you, you could tie distributions from the trust to marriage and/or the birth of a child.
  • Philanthropy. Reward a beneficiary for engaging in charitable activities by matching contributions or allowing distributions to supplement the income of a beneficiary who chooses to work for a non-profit or volunteer for free at a charity.

Contact Knoxville Trust Attorneys

For more information, please join us for an upcoming FREE webinar. If you have additional questions or concerns about incorporating an incentive trust into your estate plan, contact the experienced Knoxville trust attorneys at Stivers Law by calling (305) 456-3255 to schedule an appointment.

Author Bio

Justin Stivers is the founder and managing attorney of Stivers Law, an estate planning firm specializing in wills, probate, trust administration, and financial risk management services. Justin’s approach goes beyond just creating legal documents. From aligning investments with estate plans to ensuring comprehensive insurance coverage, he safeguards a client’s legacy from unforeseen circumstances. His commitment extends beyond individual transactions, fostering lifelong partnerships to provide ongoing support and guidance.

With an impressive track record, Justin is licensed by the Florida and the Tennessee State Bars. His professional portfolio boasts Series 65 registration as a Registered Investment Advisor, the Wealth Management Specialist™ designation, and a 2-15 License for Health, Life, and Annuities. His dedication to excellence has earned him positions like Board Member of the Estate Planning Council of Greater Miami, Business Eagle Member of the Florida Justice Association, and active membership in esteemed organizations like the American Academy of Estate Planning Attorneys.

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