How incentive trusts can backfire on your intentions

On Behalf of | Sep 2, 2021 | Estate Planning |

You have given quite a lot of thought to your estate planning. One of the options that you are considering for your heirs is an incentive trust. Should you give the green light to your estate planning professional to proceed with the trust, or select an alternative?

Before you are too quick to fund an incentive trust, consider the different ways that these trusts can fail to meet the needs of your heirs and beneficiaries. 

Not all conditions may be able to be met

The premise of an incentive trust is that the beneficiaries must meet the specific conditions set forth by you, the trust grantor. Some common conditions include obtaining post-secondary education and often receiving advanced degrees, whether in law, medicine, business or a Ph.D.

But suppose one of your grandchildren doesn’t have the mental acumen to achieve such milestones as set forth in the trust. Or perhaps they suffer a devastating traumatic brain injury (TBI) in an auto accident or fall, leaving them mentally incapacitated but in need of expensive care and assistance for the rest of their days. Would you really want them to be denied disbursements as a result?

Dead-hand control can tarnish your legacy

Many trust beneficiaries come to resent their benefactors because they perceive them as trying to control their beneficiaries from beyond the grave. This “dead-hand control” can cause your heirs to think of you not with gratitude and fondness but with resentment and festering anger if they don’t comply with the constraints of the incentive trust.

Address your concerns with your estate planning professional

Trusts can be drafted that cover most contingencies in a person’s life, and trustees can be appointed who have wide latitude to consider special circumstances when it comes to complying with incentives set forth in a trust. By working closely with a professional, you can be sure that your trust addresses all your issues while you are present and can approve the terms.