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Tampa Estate Planning Attorney > Blog > Trust > Incentive Trust Dos and Don’ts

Incentive Trust Dos and Don’ts


Do you hate-watch celebrity news videos about the latest misbehavior of the sons, daughters, and grandchildren of stars who made their fortune when you were young?  Does the phrase “trust fund baby” make your skin crawl?  Are you appalled at the amount of money that the young generation spends on clothes, phones, and educational qualifications that serve little practical purpose?  Ask yourself honestly what motivated you to make the financial choices that enabled you to accumulate the wealth that you currently have?  Most likely, your motivation was to provide financial security for your children and their children.  In other words, you like the idea of giving your descendants a financial cushion, but you dislike the idea of them squandering the money you worked so hard to earn or being idle just because they can depend on their inherited wealth.  A Central Florida estate planning lawyer can help you decide if an incentive trust is the best way to help your children and grandchildren without spoiling them.

How an Incentive Trust Can Help Your Descendants Use Their Inheritance Money Responsibly

Whenever you set up a trust, you include instructions for the trustee on how to disburse the money.  It can be as simple as saying that you want beneficiary X to receive Y amount of money from the trust each year.  With a revocable trust, which can start paying out money to the beneficiaries while you are still alive, the grantor (the person who transferred his or her wealth to the trust) and the trustee (the person responsible for paying money out of the trust) can be the same person, namely you.  If you set up an incentive trust, you can set expectations which the beneficiaries must fulfill before they can receive funds from the trust.

A common application of incentive trusts is to use them to help your grandchildren pay for college and postgraduate education.  You can specify that the beneficiaries must be enrolled in a university to receive the money you have placed in the trust for them.  You might even write a provision that they can receive the rest of their share of the funds as a lump sum when they graduate.  Knowing that you have set aside money for their education can encourage your grandchildren to pursue higher education, knowing that they will not have to borrow large sums to do it.

Incentive Trusts: What Not to Do

Grantors have great flexibility with the conditions they place on incentive trusts.  Although it might be tempting, you should not be arbitrary or vindictive with incentive trusts.  Here are some examples of what not to do.

  • Do not make staying away from drugs or alcohol a condition of receiving money from an incentive trust. Money does not cure addiction, and if the beneficiary is struggling with substance use disorder, the conditions of the incentive trust could make it even harder for him or her to use the money to start or continue treatment.
  • Don’t use the incentive trust to punish some family members and reward others. In other words, don’t state that beneficiaries lose their right to trust money if they get tattoos, marry outside your faith, register with a political party you dislike, or fail to fulfill any of your other plans for them.

You are within your rights to bequeath different amounts to different family members based on their needs or your preferences, but the place to do this is in your will, not in an incentive trust.

Contact an Attorney Today for Help

An estate planning lawyer can help you form an estate plan that helps your descendants meet their goals without spoiling them.  Contact David Toback to set up a consultation with an experienced Tampa estate planning lawyer.


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