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Using incentive trusts to motivate your heirs: A good idea?

Did you know that it is possible to increase the amount of control you have over your estate plan through the use of a special type of trust? That is right; the incentive trust is a specific program that allows posthumous gifts to be closely monitored according to a strict set of guidelines. In most cases, incentive trusts are used to prevent beneficiaries from becoming "trust-fund slackers" who are exempt from achieving simply because of their inheritance. New York benefactors can include a variety of conditions in these incentive trusts, which can be used to motivate beneficiaries to perform a variety of tasks.

Experts say that there are a variety of options for incentives that can be included in your particular trust. For example, beneficiaries who choose to engage in charitable work could benefit from additional payouts from the trust. Further, beneficiaries could be required to complete college in order to receive the financial benefits held in the trusts.

Although these options seem desirable on the surface, it is important to consider whether hard-line requirements are appropriate for your estate planning strategy. Consider, for instance, the trust that prevents a beneficiary from receiving funds if he or she is using drugs. The logistical nightmare that arises from drug testing alone -- including medical-privacy concerns -- quickly becomes a headache.

Experts say that it is useful to consider nonbinding incentives before committing to a full-blown incentive trust. For those who choose the latter option, careful drafting of the document is critical to success. Consider suspending certain restrictions if the beneficiary becomes disabled, for example. Incentive trusts certainly have their place in the estate planning landscape, but they should be approached with caution.

Source: Barron's, "Incentive Trusts Can Keep Your Heirs Motivated" Amy Feldman, May. 17, 2014

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Weinstein & Randisi
290 Linden Oaks, Ste. 200
Rochester, NY 14625

Toll Free: 800-768-1780
Phone: 585-310-1578
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