You may have set aside assets in your estate plan for a beneficiary to inherit. This inheritance may be intended to provide them with ease from financial strain and allow them to invest in their future.
You can not be sure how your beneficiary will use their inheritance. You may fear that a beneficiary will misuse their inheritance, wasting away a promising future. However, you can make changes to your estate plan to protect your assets from misuse. Here is what you should know:
Protecting your legacy with an incentive trust
One way to protect your assets is by creating an incentive trust. An incentive trust allows you to decide when and how a beneficiary accesses funds. This is done by creating a clause that prevents access to trust funds unless a certain condition is met. Some popular conditions of an incentive trust include the following:
- Income: A beneficiary may be required to work despite having a sizable inheritance. However, an incentive trust may match a beneficiary’s income dollar for dollar. In other words, a beneficiary could access $1,000 from a trust fund only if they also earn $1,000 working.
- Education: A beneficiary’s education may be funded with an incentive trust. Trust funds may only be accessible while a beneficiary is in school and limited to their performance – higher grades would mean more access to funds.
- Marriage: A beneficiary may be allowed to access trust funds after they marry. However, the funds may only be accessible after a certain number of years of marriage.
You often must be careful how you word an incentive trust. The wrong language can prevent a beneficiary from accessing funds. Legal guidance can help draft an incentive trust.