Incentive Trusts

Incentive Trusts

Dear Garden State Trust:

The opioid crisis just hit a bit closer to home. Some friends of ours have a 20-something child who has an addiction problem. They are trying another round of rehab; maybe this time it will work. But they’ve confided in me that they don’t know what to do about an eventual inheritance for this child. They worry that a financial windfall might be very bad, the money wasted on drugs. Do you have any thoughts on this?

—Asking For a Friend

Dear Asking:

In situations such as these, we recommend looking into a fully discretionary trust for inheritance management. Some may call this an “incentive trust,” because trust payouts may be tied to successful life achievements, such as sobriety for a certain period. Your friend will work with an estate planning attorney to craft the trust, providing specific instructions for the trustee regarding the circumstances that will call for distributions of income or principal. An incentive trust may last for a set number of years, until a certain age is reached by the beneficiary, or it could provide financial support for life. It will also protect those financial assets from the claims of the child’s creditors.

Who should be the trustee of the incentive trust? This is not so simple to answer, as family dynamics will come into play. But a professional trustee, such as us, should be under consideration.

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(October 2019)
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