We often talk about using provisions in Wills and Trusts to protect money and other assets that are left to children and other family members. Another function of proper planning is to create incentives for family members left behind. These can be as varied as your imagination allows. You may wish to reward a child for completing college, for attaining a certain grade-point average, or for earning a certain amount of money per year.
Why would I want to create an incentive?
The answer to this is very personal. You must imagine a situation where you are not around, but wish to encourage your child to accomplish certain things in your absence. Let’s assume you wish for your child to start their own business, or encourage a dream that your child has already expressed to you. You simply direct your Trustee to distribute money to the child upon submission of a business plan that the trustee deems worthwhile. You may limit this as to the amount of money, or state that it cannot occur until a stated age, or until the child receives a college education. You may even specify the type of business — such as a hardware store or pizza restaurant. This is only one example — there are numerous other possibilities relating to education, marriage, vocations, etc. You are the one who decides.
Isn’t this somewhat controlling? Is this really fair?
Of course it is controlling. But is that really a problem? It is YOUR money. You are choosing to give it to them if you don’t live long enough, and are just telling them what would please you. We don’t typically suggest a “do this or else” approach. Rather, think of it as “if you do this I’ll reward you by helping you”. Typically, trusts provide that money can be used for “necessities” until a pre-determined age, and then all the funds are distributed. An incentive provision simply says that the child can have more for certain purposes that you deem worthwhile. To look at it another way, you are saying “If I was still alive I’d give you money for this” in addition to what you might otherwise do for them.
Does this place an additional burden on my Trustee?
Yes, to some extent it does. That’s why it is important to use language in the Trust defining the incentive clearly if possible. For instance, it is better to require a 3.5 grade point average as opposed to “good grades”. It is easy to determine income earned based on tax information if the Trust matches income. The example of starting a business is a little tougher. This highlights the necessity of picking the right Trustee. What about a troubled child? If a child has a known alcohol, chemical, or other behavioral problem, provisions can be used to distribute money based on drug testing, criminal records, etc. Nobody wants to think about those possibilities, but if they exist, the proper rewards can be a most comforting way to encourage the breaking of bad habits.
How do these really work?
By reading some sample provisions you can get a better idea of how these actually work. The possibilities are limited only by your imagination.
Contact us to explore these ideas further.