A trust is a legal arrangement that allows grantors to distribute assets to beneficiaries. A trust is managed by a trustee, who holds assets on behalf of the grantor. Many trusts are used to avoid probate, estate taxes and challenges. Another benefit of a trust is to help prevent beneficiaries from misusing trust funds.
For many trusts, trust funds are distributed immediately after the grantor passes away. With the right trust, grantors can set specific terms for when and why wealth is distributed to beneficiaries. One such legal document is an incentive trust. Here is what you should know:
How can an incentive trust help protect the future?
An incentive trust allows the grantor to set specific terms that the grantor must adhere to if they wish to access trust funds. The use of this is that beneficiaries often have to make practical decisions that could potentially benefit their future.
For example, one such way to use an incentive trust is by incentivizing a beneficiary to go to college or graduate school. An incentive trust could allow a beneficiary to access funds if and only if they are enrolled in higher education. The grantor could also set goals for the beneficiary by only rewarding the beneficiary if they earn high grades. Assets could be distributed based on a beneficiary’s GPA.
Education is not the only reason to set up an incentive trust. An incentive trust could also be used to help ensure a beneficiary pursues a rewarding career. The grantor could set up an incentive trust to distribute assets to the beneficiary proportionally to their income. This could incentivize a beneficiary to pursue higher-paying jobs and prevent them from spending their wealth on frivolous investments.
Grantors should take their time as they consider what a trust should do. Legal guidance can help grantors explore their trust options.