Incentive Trusts
Sunday's New York Times had a nice article on incentive trusts. The idea of an incentive trust is to make distributions from your trust to a beneficiary contingent upon the beneficiary doing (or not doing) something. Incentive trusts can be based on things like:
-Educational accomplishments
*the better your grades, the more money you get
*you get money when you graduate from college or university
-Family accomplishments
*you get money if you get married
*you get money if you have a child
-Job accomplishments
*you get money if you hold a full-time job
*you get money equal to the salary you receive at your job
-"Substance Abuse" accomplishments
*you get money only if you pass a drug test or complete drug rehab
The major knocks on incentive trusts are (1) they seem like a desperate way for a deceased person to seek control over his or her beneficiaries from beyond the grave and (2) inflexibility. I think careful drafting can provide solutions to both of these problems. When I've set up incentive trusts for clients in the past, I've tried to spend a lot of time determining my clients' real goals and walking them through various scenarios. After doing so, most clients will decide to limit their use of incentives to provisions that represent their core values. In other words, we can probably figure out a way to encourage your child to get a good education, but it may not be wise to require the child to attend your alma mater.
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