Today's baby boomers want more out of their estate planning than just passing along an inheritance to their children. They also want to pass along their values - and they're using incentive trusts to do just that.
Incentive trusts do more than protect a child's inheritance until the child is old enough - and mature enough - to handle the money. They actually go one step further - they use the inheritance as sort of a reward for doing the right thing.
For example, a traditional trust would hold an inheritance until a child was, say age 25. At that time, it was believed that the child would have finished school and started on a career. At the very least, the inheritance wouldn't serve as a disincentive to finishing school or getting a good job. At age 25, or there abouts, the trust would end and the inheritance would be given outright to the child.
With an incentive trust, the inheritance is not only held in trust for much longer period of time, it also comes with certain strings attached. For example, the trust may provide for a gift to the child of $50,000 or so upon graduation from college. It may also provide for a gift of $25,000 or so as a wedding gift. The incentives can be as imaginative as the furtile minds of the parents - and often are.
That's one of the problems, too! Critics say that incentive trusts can place unreasonable or even unacceptable expectations on the beneficiaries. Professionals who advise parents about incentive trusts need to be more than justs lawyers skilled in the laws of trusts, estates, and taxation. They also need to be skilled in the realm of social behavior so that the consequences of certain incentives are well thought out. What would happen, for example, if a trust provided a dollar-for-dollar match of every dollar earned by a beneficiary where one beneficiary was a higly-successful business person and the other was a struggling artist. In that case, the incentive might be counter-productive.
Still, incentive trusts are growing in popularity and you should be aware of the possibilities they provide. For a good general explanation of incentive trusts, take a look at an article entitled "Planning: Handing down values as well as wealth" by Catherine M. Allchin, The New York Times. The article was also published in the International Harold Tribune.