More than one person has said they don’t want their kids to be spoiled by a large inheritance. However, there is a way to leave money to heirs in such a way, that they have to attain certain life goals such as graduating from college or avoiding drugs or alcohol, before receiving their inheritance.
FEDWeek’s recent story, “Using a Trust as an Incentive for Your Heirs” explains that trust distributions can be limited to modest amounts or left to the discretion of the law appointed trustee, who’ll manage the trust assets for the trust beneficiary.
The article warns that if you do leave money in trust, and you use the common practice of providing for distributions at the ages 25 and 30.
It may trigger a negative response until your heirs may conclude that after finishing their education and postponing establishing their careers. As they are scheduled to receive a large inheritance, it might decrease their drive to pursue a meaningful career.
One alternative is to use an “incentive” trust instead of an age related trust. This type of trust offers rewards to trust beneficiaries when they accomplish specific goals.
With an incentive trust, the beneficiaries might receive a bonus amount of money for getting higher education degrees, attaining certain levels of earned income or volunteering at a church or in the community. For instance, your trust could be drafted to state that the trustee will distribute to each of your grandchildren a certain percentage (such as 25%) of earnings each year, up to a certain amount. Which will be tied to this incentive requirement that you make.
Or you could leave the incentive payments to the discretion of the trustee. The trust might detail the types of activities that will be rewarded, then permit the trustee to make appropriate distributions.
This may be an instance where a professional trustee makes sense, as they are less likely to be swayed by the emotional drama of an heir. However, you could select a friend or a relative for the task, as long as they are willing to take on the responsibility. Make sure to name a successor trustee, in case anything happens to the primary trustee. If you think your heirs may be problematic, alert and prepare the trust so they can handle potential conflicts.
Please contact GY Law and we can help you with the appropriate plan for your heirs and your overall estate.