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Incentive Trusts: A Good Solution for Your Family Members?

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For many individuals planning their estate, their main struggle is in finding a way to control where their money goes and how it is spent after they pass on. There are times where New York courts will reject conditions on a gift passed through your estate, so it requires skill to be sure that your terms survive the probate process. Incentive trusts may be a good solution for you if you’re attempting to elicit certain behavior from your heirs and loved ones after you pass on, and wish to reward that good behavior even when you’re no longer around to see it.

Incentive trusts function as a motivator for certain behavior, allowing the gift-giver to create a trust that will distribute trust funds to heirs only when they have met certain conditions. These conditions can look very different from case to case. One common purpose of an incentive trust is to motivate heirs to obtain an education, or to study in a specific field. The trust can provide that no funds should be distributed to an heir who declines to obtain their college degree, or that funds will only be distributed while that heir is in school and maintains a grade average of a B or higher. For instance, the trust could provide that it would distribute a down payment for a house to be purchased by the beneficiary, but only after that beneficiary had completed their degree.

Another common incentive is employment. In order to prevent an heir living solely off trust funds without developing their own career, an incentive trust can serve to motivate the development of earning capacity by an heir by making distribution of the trust conditioned on employment. This type of incentive trust may match a beneficiary’s earnings in full or supplement those earnings by matching a percentage. Other incentives can include conditioning distribution on the beneficiary getting married, or distributing trust assets only to those who are engaged in a particular form of charitable work.

Critics of incentive trusts point to the degree of inflexibility in these trusts. For example, if a trust is created for two siblings with the incentive of matching their job earnings dollar-for-dollar, that term can become problematic where one sibling chose the field of investment banking, and the other chose a low-paying but morally admirable field like social work. Another example is an heir who chooses a field of work that does not require a college degree, but still leads to gainful employment. As a result, there is some advantage to creating some flexibility in the instructions for distribution left for the trustee, and this requires the careful selection of an estate planning attorney who can skillfully draft such a trust.

If you are in need of knowledgeable assistance in planning your estate in New York, contact the experienced Hudson Valley wills and trusts attorneys at Rusk, Wadlin, Heppner & Martuscello for a consultation, in Marlboro at 845-236-4411, and in Kingston at 845-331-4100.

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Kingston Office

255 Fair Street, P.O. Box 3356
Kingston, New York 12402

Phone: 845-331-4100
Fax: 845-331-6930

Marlboro Office

1390 Route 9W, P.O. Box 727
Marlboro, NY 12542

Phone: 845-236-4411
Fax: 845-236-3190

Rusk, Wadlin, Heppner & Martuscello, LLP, is located in Kingston, NY and Marlboro, NY and serves clients in and around Ulster County as well as parts of Orange, Dutchess, Columbia and Greene Counties as well as many surrounding areas.

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