When doing your estate planning, trusts offer a lot of control over exactly what happens to your money. Some people use spendthrift trusts to protect heirs from their own spending habits, for instance. Others use educational trusts to pay for college tuition. Today, we’re going to take a look at incentive trusts.
An incentive trust does just what the name implies. You fund it with money from your estate. You lay out specific incentives for your heir. If they meet those goals, the trust pays them a specific amount of money, which may already be predetermined.
Maybe you want it to pay everything to an heir who graduates from college. The goal is to get them to focus on their education, and get a degree. You put $100,000 in the account. As soon as they graduate, the trustee can give them all of the money to help them start the next stage in their life.
Maybe you want to pay out the trust in smaller increments. For example, perhaps your goal is to make sure your heir always has a full-time job. For every year that they do, it pays them an extra $10,000. You could also consider matching their earnings. This acts as an incentive for them to work hard and advance their career when they can.
These are just a few examples to show how these trusts work. You can pick your own goals and incentives. If you want this type of control over your estate, take the time to look into your various options with trusts and other financial arrangements.