There are many different types of trusts you can create as part of your estate plan, depending on the goals that you want to accomplish. You can set up a special needs trust to protect someone’s access to government benefits, for example, or a spendthrift trust if you have an heir who tends to frivolously spend their money.
One example of this is known as an incentive trust. It essentially gives the beneficiary certain incentives, and they receive payouts from the trust if they meet them. Let’s look at two ways that this could work.
Accomplishing a goal
For one thing, you may have a certain goal that you want the beneficiary to accomplish. Perhaps you want them to get a college education. You leave $500,000 in a trust for them, but they only get access to those funds if they graduate. This way, you ensure that they will take their studies seriously and complete their education, knowing there’s a significant reward waiting for them if they do so.
Remaining employed
If you’re leaving a significant amount of money to a beneficiary, you may worry that they’re just going to retire early and live off the money. But you want them to stay employed and focused on their career. An incentive trust could simply state that they can take payouts from the trust equal to the amount of money they earn in any given year. This way, not only do they have an incentive to work, but they can actually get more money out of the trust if they receive promotions and raises at their job.
These are just a few examples of how to use a trust. Be sure you know what options you have when creating an estate plan.