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What are the pitfalls of incentive trusts?

On Behalf of | Jul 18, 2022 | Estate Planning

Incentive trusts are one of several types of trust you might consider when creating your estate plan. As the name suggests, they exist to incentivize the beneficiary to do something. 

That might sound like a good thing, especially if you feel your children need an extra push, yet they are not without their problems. Here are some of the downsides to consider:

You could make it impossible for your child to get the assets

What if your child has a terrible accident? You would probably give all the money you have to help them recover. Yet what if you were already dead and had tied the money up in an incentive trust? Your child may not receive the care and support they need. What’s more, their injuries may prevent them from ever fulfilling the conditions you set for them to receive their inheritance.

You could push someone in the wrong direction

As a parent, you might have dreams for your kids, but they might not share them. Plenty of people have dropped out of school and gone on to achieve far greater success, wealth and happiness in fields their parents initially disapproved of them entering. Making finishing medical school a condition for the trust to pay out could help your child secure a well-paying career. Yet, it could also prevent them from following their true calling. 

You could send the wrong message

Some children feel they are a disappointment to their parents. They think their parents will never love them as much as their more successful siblings. Attaching their inheritance to specific targets could reinforce this message. They may never realize you always loved them regardless.

Making the right choices for you and your family can be complex. Seek legal help to learn more about incentive trusts and other estate planning options.