Dictating from the Grave: Using Incentive Trusts

Many of our clients have children or grandchildren (beneficiaries) that need protection from their own proclivities even as adults.  Some of these habits include addictions, poor spending habits or just not living up to their potentials.

So what is a parent or grandparent to do?  Why not use an “Incentive Trust”?  An Incentive Trust is a type of trust that attempts to encourage and reward “good behavior” and discourage “bad behavior” of the beneficiaries.

For example, if a beneficiary is known to have bad spending or saving habits, the trustee of your trust can be directed not to distribute any monies or assets to that beneficiary unless the spending beneficiary shows by a check register or other record keeping system that he or she is spending monies responsibly in the eyes of the trustee.  The trustee can be given guidelines as to what the maker of the trust would consider responsible.  This might include percentages put away by the beneficiary for savings, housing, auto and auto allowances.

Similarly, if a beneficiary has an addiction problem, the trustee can be instructed to distribute only the bare minimum for living expenses until the beneficiary has shown that he or she has been sober or clean for a definite time period and has documented evidence that he or she has attended X amount of meetings per week of AA or NA (Narcotics Anonymous).

With each example, the trustee should be given the ability to make distributions to the beneficiary directly or to a store or vendor directly if the situation warrants this type of indirect payment.  This is a needed protection, since the beneficiary may take even a small distribution from the trustee and spend it on those items that are not intended by the maker of the trust.


Contact William S. Wilson at 708-482-7090 or at wwilson@wilsonwilsonllc.com if you  desire to continue this discussion.