Incentive Trusts

By James Witherspoon
When people begin the process of establishing the future of their estates, there are multiple options to consider, especially if a particular beneficiary is not necessarily trusted to spend the money correctly or live according to the standards of the benefactor. In these instances, a trust can be set up with certain limitations and stipulations attached in order to direct the beneficiary towards a certain lifestyle. This type of trust is known as an incentive trust.

As far as real-world applications are concerned, incentive trusts have been used in several capacities regarding a person's life choices. Perhaps one of the most obvious uses for an incentive trust is to set up a fund that becomes accessible once a person obtains a degree. Many parents recognize that education is an important way to increase the possibility of getting a higher paying job or to build necessary business contacts and gather life experience.

In addition to education, some estate payments may not become available unless a beneficiary either begins or enters into a particular career path. These trusts may be paid out accordingly in a lump sum or as a matching fund, meaning that each dollar made through the beneficiary's business is matched by the trust.

There are times when a person recognizes that their beneficiary has a past with substance abuse, gambling addiction, or a similar affliction. Incentive trusts can be set up in order to provide a reason for that person to quit their lifestyle and get clean. These trusts can provide a person with money only if they can prove that they are not abusing drugs or alcohol. While this does not necessarily mean that a person will not continue battling with an addiction, this can be a powerful way to get a person to reconsider their decisions.