Incentive Trusts

Incentive Trusts

A recently proposed bill in California is geared toward helping people stay sober by providing financial incentives to so. Although it might seem as though financial incentives would not be substantial enough to change behavior in terms of healthcare, we recently saw that incentives increased the likelihood of people getting a vaccine when they were introduced by some state governments.

More substantial studies have been done on how financial incentives can help support a structure of self-care as well. One study published in The New England Journal of Medicine examines different financial incentive programs for smoking cessation, one in which there is no cost of participation and another in which a deposit is required to participate with similar rewards. One interesting conclusion was that the no-deposit model was more effective overall because it had a much higher adoption rate, yet the deposit method was more effective for the select few that were willing to participate.

Overall, the study showed a meaningful change nearly tripling the rate of smoking cessation for six months with adding the financial incentive of only $800. Should any of the individuals in the study be a pack a day smoker, they would have actually saved more than twice the new financial incentive on their own by quitting too.

Smoking is only one of many poor habits that parents may wish their children would avoid, and an increasing prevalent and dangerous addiction is opioid use. Financial incentives may help, but addiction is hard to fight, and even in the study referenced the amazing tripling rate of cessation from ~5% to ~15%, still a fairly low number. Every year in Ocean County there is a charitable event called Rock The Farm, which is an outdoor concert that is planned to progress this year to support the efforts of the CFC Recovery. They provide a different approach toward healing by trying to create sober social structures, an element that is often overlooked for addicts reimagining a new identity for themselves.

When it comes to financial and estate planning, it can be especially difficult to know what to do with a beneficiary who has previously demonstrated poor behavioral patterns. Questions emerge about whether a financial windfall might actually create more problems than it solves and about how to know who to trust with their care.

Love being blind often causes us to not realize problems are problems until it’s too late (or much more difficult) to solve them, which is why an outside perspective can be important.

An incentive trust is a trust that includes provisions requiring beneficiaries to meet certain conditions before the trustee can distribute funds.  This means that the funds can only be accessed in specific situations or for specific needs. Some incentive trusts give the trustee the authority to spread distributions out so the beneficiary doesn’t receive them all at once, but the incentives can be much more varied.

Incentives don’t only need to target negative behavior, such as drug abuse, either. For example, a provision encouraging positive behavior might be to encourage charitable work or giving, offering to provide extra funds for a beneficiary as a reward for volunteer work or to match their charitable gifts.

However, for families wanting to create provisions to provide financial incentives to prevent drug abuse, it can become a little more complicated. Martin J. Hagan, J.D. wrote a three part guide for Kiplinger  “Designing Trusts for Beneficiaries with Substance Abuse Problems” that goes over some of the basics. Part one identifies how the trust can view the problem differently. Part two is really for the trust officer and estate planning attorney as it goes over the language the trust should include to protect other government benefits. Part three is about who the best party would be to select as the trustee.

The most important take-away is that the trust is not a magical lamp that will necessarily solve the problem. It can provide additional structure for a beneficiary by using incentives, so as goals are accomplished within a treatment plan that includes caregivers, physicians, therapists, and others, the beneficiary will receive funds. The structure could be cash incentives, but a trust can also ensure that the money is spent in a particular way, avoiding the potential that the money itself is abused. For example, instead of making a cash distribution, the trustee could be in charge of paying for particular expenses such as a car, vacation, or club membership every year should the beneficiary remain sober.

Being a caregiver is a difficult job and being impartial toward those we care about can be nearly impossible. Care needs to be ongoing and responsive to changing circumstances. Being a trustee for a beneficiary with substance abuse issues isn’t easy either. One needs to be careful about distributions so as not to jeopardize other government benefits, one may face difficulties in verifying whether goals are met that would trigger distributions, and additional coordination may be needed to set up a treatment team beyond the standard team a trust department may work with.

Mr. Hagen notes that “Sometimes individual trustees end up resigning from the trust due to emotional fatigue.” The best trustee might end up being someone that is most familiar with the situation, but it may also be appropriate to have a co-trustee that deals with many cases of this nature. Mr. Hagen also notes that the best institutional trustee choice would likely be one that has familiarity with special needs trusts, such as Garden State Trust Company, since we are already familiar with social workers and case managers that have experience with the medical and health needs of disabled beneficiaries.