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The Montana Estate Lawyer

Friday, January 12, 2018

Use of incentive trusts in estate planning

Many clients today are concerned about not only transferring their estates upon death in a tax-efficient manner, but also a structuring their estate plans so that the lives of their children, and perhaps grandchildren and other descendants, are enhanced. Clients often express a concern that if their children inherit large sums of money they will lose their entrepreneurial spirit or motivation to be productive and responsible citizens.

One of the best ways in the estate planning context for encouraging positive behaviors is through an incentive trust. An incentive trust is a trust like any other, but rewards the beneficiaries when they meet certain objectives or goals in their lives. The theory behind incentive trusts is that parents can help guide their family by offering financial incentives to meet certain goals.

For instance, if parents want to encourage a child's education and academic success, a provision could be included in the trust that would authorize distribution for tuition, room and board, etc., and could even reward the child with a lump sum payment of a certain amount for graduating college. If parents wish to stimulate productivity, an incentive trust provision could allow for distributions to a child who is employed on a full-time basis or could provide for distributions that match dollar for dollar the amount of the child's earnings or up to or over a certain amount. Parents desiring to promote charitable causes could provide in such a trust for distributions matching the child's contributions or even provide for distributions to the child for spending a certain number of hours each year working as a volunteer for a charitable organization.

The types of incentives included in such a trust are virtually unlimited.  Incentives can be drafted to meet almost every need and wish imaginable and, of course, more than one type of incentive may be included in the trust.

Jon


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