You may have heard of wealthy people who decide not to leave an inheritance to their children. In some cases, they decide to give the money away, or they may choose to spend it themselves. It is sometimes shocking to outsiders to see beneficiaries being cut out of this generational wealth.
But the reason often given revolves around work, productivity and motivation. People want their children to have a strong work ethic and make something of themselves on their own. They are worried that just giving them an excessive amount of money will lead them to quit their jobs or give up on their own career aspirations.
How can you prevent this?
If you’re leaving a substantial inheritance to your beneficiaries, you certainly may be worried that it is going to take away their motivation to succeed on their own.
Luckily, there is a solution. It is known as an incentive trust. Instead of giving the money to your beneficiary directly, you put it into the incentive trust in advance, and then you name a trustee to make distributions. You instruct the trustee to only pay money out to the beneficiary under certain circumstances.
For instance, maybe they can make an annual withdrawal to supplement their earnings, but they are only allowed to withdraw as much money as they have earned during the year. This way, they get to live far above their normal financial position, but they still have a clear incentive to keep working.
This is just one example of how to use a trust in an estate plan. Look into your options carefully while drafting yours.
