What is an Incentive Trust?

An Incentive Trust is a tool used to encourage certain positive behavior in beneficiaries. Some of this behavior may include earning a college degree, maintaining employment, or abstaining from drug or alcohol use. Typically, the beneficiary would be paid a certain amount from the trust upon completing those obligations, or the trust would match a dollar of income for every dollar the beneficiary earns.

Oftentimes, the incentives included in the trust can include specifications such as maintaining a certain grade point average or passing a drug test. Also, you can encourage beneficiaries to participate in charitable activities so money could be distributed for working for a foundation.

While incentive trusts can encourage good behavior, they can also impose rigid rules that could end up working to the detriment of your beneficiaries.