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The benefits associated with setting up an incentive trust

Do you wish you could exert more control over the choices your child made in their lives and as they progress through adulthood? If so, you may find that an incentive trust can help ensure that happens.

These types of trusts have become increasingly popular among estate planning clients in recent years because of their ability to reward beneficiaries for living their lives in a certain way, such as engaging in positive behavioral choices,. The way this type of trust works is that the more the beneficiary lives in alignment with the benefactor's desires, the more money the trust pays him or her.

When the beneficiary's parents first draft the directives for the trust, it's important for them to spell out their philosophy on life. The trustee is the actual one who enforces the parents' directives and determines whether or not the beneficiary's behaviors merit receiving a payout from the trust.

One example of a directive a parent may issue for the trustee is to never authorize a distribution that would make it unnecessary or unattractive for the beneficiary to discontinue working to support his or herself. This type provision captures why many financial planning experts liken incentive trusts to earned income. In this instance, a beneficiary is incentivized for making more money independent of the trust.

This type of trust has become increasingly popular in recent years as more parents of means are looking to ensure that their kids do not become spoiled and simply live off their inheritance. Parents see having a trust like this in place as a way to ensure that their child is encouraged to take a proactive role in making their way in the world.

There are instances in which life happens though. Your child may still be enrolled in school, come down with an illness or suffer a disability and be unable to work as much or in the way you hoped he or she would. Your child may even choose to volunteer or take a job in profession that pays poorly or is in a economically disadvantaged area. Fortunately, you can detail how you want the trustee to handle situations such as this when making distributions from the trust.

If you'd like to better understand the benefits of setting up a trust, whether incentive or some other type, then a Los Angeles estate planning attorney can answer any questions you may have.

Source: The Balance, "Do Incentive Trusts Work?," Paul Spencer, accessed Sep. 21, 2017

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