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Use Incentivized Trusts to Avoid Squandering of Inheritance

Dennis Yu - Tuesday, June 30, 2015

For parents, who are concerned that their children will squander their inheritance, there are estate planning tools that can be used to ensure that this does not happen.

Talk to a San Jose estate planning lawyer about setting up an incentivized trust. Many parents who use trusts like this, fear that the children will use their inheritance irresponsibly, and worse, that the inheritance will kill any drive that the child might have. In many cases, parents have built their wealth on their own, and they want their children to exhibit some of that same spirit and passion for creating wealth that they had. Unfortunately, receiving a large inheritance can very often snuff that spirit, and prevent the child from making a mark on the world.

Parents like these can use an incentivized trust. A trust like this will actually use incentives before delivering money to the ends.

You can use creative incentives, setting milestones for your children that they must meet before they can receive the next windfall from your trust. Many parents incentivize their children's income levels. For instance, you can stipulate in your trust agreement that the child must earn a certain amount of income every year, and that the trust will deliver only the amount of income that child has earned. For instance, if your child has earned $80,000 this year, then the trust will disburse $80,000 at the end of the fiscal year.

You can also incentivize your child's education. You can add a clause to your trust agreement to allow the trust to deliver a certain amount of money when a child completes college and gets a bachelor’s degree, and can increase incentives if the child studies further too.


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