Is an Incentive Trust Right for You? Here’s What You Need to Know.

Estate planning isn’t usually discussed at the dinner table, and for understandable reasons. It involves tricky conversations about who gets what assets, and why. Like most individuals who estate plan, you want the best for your heirs, especially if they are related to you. We all want to believe that our heirs would be able to handle a significant amount of inheritance and manage it in a fiscally prudent way, >however we know that this is unfortunately not always the case. If you want to provide for an individual who struggles with unhealthy spending habits, but protect your own hard-earned assets, what can you do?


At M&A Law, we have helped numerous clients in this position. They do not want to cut their fiscally irresponsible heirs off entirely, but they do want to make sure that the assets left to them are managed wisely. One option many clients in this position choose to utilize is an incentive trust. This can be a very good solution to the problem, however as with all trusts it is important that individuals considering an incentive trust carefully think through its terms and conditions.

An incentive trust is a trust that allows the creator to dictate the circumstances under which the assets contained within it will be distributed to beneficiaries and heirs. While the condition for assets in wills to be distributed is generally that the estate holder dies, the terms for distribution of assets in an incentive trust are more along the lines of encouraging healthy or positive behaviors, and discouraging destructive, apathetic, or harmful behaviors. To illustrate, it can be helpful to take a look at some examples:

  • You have a fiscally irresponsible heir in their 20s who spends a large amount of money on partying, vacations, experiences, and clothes. You decide to create an incentive trust that will not give them disbursements until they are in their late 30s or 40s, at which time you believe they will be better managers of finances.
  • You have an heir with an iffy record of keeping a job, so you decide to make disbursements to them contingent upon them maintaining gainful employment for 6 months or more.
  • You have an heir with a lot of potential who doesn’t seem to take school seriously, so you decide to make disbursements to them contingent upon their graduation from college or with some other advanced degree.

Incentive trusts allow you to be creative and offer an infinite amount of customizations. Having said that, it is important to recognize that they can also create resentment towards you from the beneficiaries. Further, if a court thinks that the terms are unreasonable or violate public policy, such as by imposing a restraint on marriage or encouraging a divorce, it can be invalidated.

If you are interested in creating an incentive trust, we are here to help. At M&A Law, our attorneys have extensive experience helping clients protect their assets while providing for fiscally irresponsible loved ones. We will work one on one with you to make sure your incentive trust is designed to promote healthy behaviors while respecting your beneficiary’s dignity and needs. Contact M&A Law Firm, PC today to discuss your options.