Many people in Florida may want to pass on an inheritance to a loved one, but they may be concerned about how their loved one would handle such a windfall, especially if they come into it at a young age. In situations like this, a person may want to consider an incentive trust.
An incentive trust can be used in a way that allows a person to see that their loved one uses their inheritance in a desired matter. Assets placed in an incentive trust will go to the trust itself after you pass away, rather than directly to the trust beneficiaries. The trustee is then the person who will be in charge of the distribution of the trust funds only if certain conditions that you have placed on the trust are met. Some examples of such conditions include earning a college degree, performing charitable work, going to rehab if the beneficiary is an addict or holding down a full-time job.
Keep in mind, that if an incentive trust is poorly drafted, there could be unwanted consequences. For example, you could say a beneficiary has to have a job to receive trust benefits. Sometimes, though, a person is the victim of a company-wide layoff or cannot work for medical reasons. When this happens, a beneficiary could be cut off through no fault of their own.
Therefore, if you want to create an incentive trust, you may want to seek the help of an attorney to ensure the trust is legally sound. In addition, while an incentive trust should unequivocally state your intentions, it may also be wise to include provisions allowing the trustee to be able to have the discretion to deviate from these intentions when necessary to avoid inadvertent results. Also, if the trust includes language that the trustee's decisions are to be considered ultimately binding, it can make it much more challenging for a beneficiary to try to contest the trustee's decision before a judge.
In the end, incentive trusts can be a good way to make sure the inheritance you leave your loved one will be used in a manner that you'd like. However, they must be carefully drafted. An estate planning attorney can provide more advice about creating an incentive trust.
Source: The Huffington Post, "How Incentive Trusts Can Motivate Your Heirs," Jim T. Miller, Nov. 7, 2016