What is an Incentive Trust?

An incentive trust is a trust designed to encourage or discourage the occurrence of certain behaviors in the trust’s beneficiaries by using the distributions of the trust as an incentive. An incentive trusts holds and manages assets for the benefit of the beneficiaries of the trust, but it is different than any other type of trust in that it uses the trust’s assets to award beneficiaries for achieving desired goals. This type of trust is often used by parents or grandparents to pass on wealth to their children or grandchildren while dually encouraging them to be personally responsible and reach important milestones in their lives. This type of trust can also lay-out specific instructions regarding how the money within the trust can be distributed and can employ certain techniques that help ensure the beneficiaries of the trust will have financial independence beyond what the trust has given them. Advantages of incentive trusts include implementing age restrictions regarding when the beneficiaries can receive the assets within the trust, encouraging educational achievement, discouraging illegal or destructive behaviors and motivating positive behaviors.

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