Are you concerned that leaving an inheritance to someone could have a negative effect? Consider using an Incentive Trust. An Incentive Trust can be designed to encourage desirable behaviors, discourage negative behaviors, or both.
Incentive Trusts commonly encourage the pursuit of higher education, purchase of a first home, use of a prenuptial or postnuptial marital agreement, abstinence from gambling or substance abuse, and saving or investing.
The incentive provisions generally fall into two types: those that give and those that take away. Suppose you want to include an education incentive in a trust for your grandchildren. To prevent the oldest child from becoming a professional student and using up all of the trust assets, you can include language that both gives (dollars for education) and takes away (limits or caps the amount of the gift), such as instructing the trustee to:
pay for undergraduate and graduate level studies
for a set number of years (say, six).
The incentive provisions can also do the work of the "bad guy" in the family. Your trust, not you, can trust turn off the cash flow if a beneficiary develops a gambling or addiction problem or is incarcerated. Your trust, not your child, will require the fiancé or spouse to sign the prenuptial or postnuptial marital agreement. So you child doesn't have to have that awkward conversation about the marital agreement, you might include a trust provision that both:
requires a marital agreement be signed before any distributions, and
requires the spouse to release any interest in the trust assets before the first distribution is made (just in case the marital agreement is ever set aside by a judge for any reason).
Drafting these types of provisions can be a challenge. For example, to prevent creating a "trust fund" baby, you include an incentive to save by instructing the trustee to match "dollar for dollar" every dollar your children save into a 401(k) plan. A disabled child may not be able to save. The child who works in a socially useful but underpaid profession will not be able to save as much as the child who became an engineer, architect or nurse. And, not all employers offer a 401(k) plan these days. To prevent the disabled or underpaid child from receiving less benefit from your trust, it is important to give the trustee authority to achieve your goals by not following your guidelines when justified.
Because, as you can see, you can't always anticipate the unexpected, some of the very best Incentive Trusts omit any specific or strict guidelines whatsoever. What they do include is very clear guidance from you about your values, your morals, your goals for your heirs. This tells your trustee how you would make decisions about the use of the trust assets. Then, the trust gives the trustee the discretion to apply your guidance and deal with any unexpected occurrences.
If you'd like to discuss creating an Incentive Trust or adding Incentive Trust language to a trust you already have, call us to talk to an attorney. The best number to reach us is always (904) 705-7355.
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