When you set up a trust, you can determine how a beneficiary is allowed to use their inheritance. Many people create trusts for a specific purpose.
For example, perhaps you want to ensure that a beneficiary finishes college, so you use an incentive trust. You leave them $200,000, but with the stipulation that they only get that money once they graduate. They can view it as a reward as they start the next stage in their life.
This all sounds like a great plan if everything goes as expected and works out smoothly. But it can be useful to give the trustee a bit of flexibility, just in case things do not go how you expect.
Future life changes
For example, you can never predict exactly how someone’s life is going to change. Maybe the college student has a business idea before graduation and wants to drop out to start a company. They know that they can immediately start making a significant amount of money, and they do not need to finish getting their degree to do it. Should that bar them from their inheritance?
Or say that they are diagnosed with a disease or a disorder, such as a chronic condition that constitutes a disability. They are no longer able to attend college. They could certainly use the $200,000 to help pay for medical bills and other types of care, but is it impossible for them to get it under the guidelines of the incentive trust?
You need to plan carefully when setting up a trust as part of your estate plan, so be sure you know exactly what legal steps to take.
