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Incentive Trusts, Do They Encourage Financial Responsibility?


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February 27, 2022

Incentive Trusts, Do They Encourage Financial Responsibility?

When thinking about who you want to leave your assets to you may question, "Is it possible to bequeath my assets under the condition that the beneficiary has to reach a certain milestone, such as completing a college degree, or getting their first job?" The answer is yes, via an Incentive Trust.

An Incentive Trust is created specifically to either encourage or discourage specific behaviors or actions of the person to whom you are leaving the Trust assets, known as the beneficiary. For example, you could state that the beneficiary will only receive a portion of the Trust once they have graduated college and will receive another portion after a different designated life milestone, like having their first child; or perhaps they will only receive the assets if they have successfully completed AA or gone to an addiction treatment facility. The stipulations are yours to make however other individuals are needed to fulfill your wishes.

  • Settlor: The creator of the Trust who is passing on ownership of assets.
  • Trustee: The individual who is chosen by the settlor to be responsible for the assets within the Trust until they are passed on to the new owner, the beneficiary.
  • Beneficiary: The person who will receive the assets of the Trust once they have completed the necessary requirements to obtain ownership of the assets.

The written rules stipulated by the settlor are legal and binding and need to be completed by the beneficiary to receive the assets of the Trust. In the interim, before the actions are fulfilled, the chosen Trustee is responsible for the assets within the Trust. Once the necessary actions are completed by the beneficiary, they will receive the assets from the Trust. Once all assets of the Trust have been passed on in ownership to the beneficiary the Trust will be closed.

Some settlors believe this type of Trust encourages say a child to complete a college degree and thus become a more fiscally sound adult. Another thought is that an Incentive Trust ensures that you have some control over how money or other assets are used, even beyond the grave. It may be important to you that your beneficiaries do not squander their assets on things that you feel are not beneficial to them. An Incentive Trust can help ensure that you know your money is being used in a way you feel is appropriate.

Wording of your instructions however needs to be approached cautiously since they are legally binding. If you are not careful, it is possible that your instructions could be misinterpreted, leaving your beneficiary without access to the assets when they need them. Alternatively, if you are not concise, then your beneficiaries could try and find loopholes in your rules. Some may not feel comfortable with the idea of having this level of power over another's life, even after death. An example being you may have wanted the beneficiary to get a college degree, but they may have a desire to attend a trade school. Or a physical illness may prevent the beneficiary from completing a college degree in their lifetime and thus they cannot obtain access to the assets.

Talk to your Private CFO® about whether an Incentive Trust might help you accomplish your estate planning goals and assist family or friends to be financially responsible with the assets you leave them.

If you would like to receive more information on making smart money moves for your future, be sure to contact us today!



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