An incentive trust is one that incentivizes the beneficiary to do a particular thing. They only receive the payout if they complete or achieve the thing or things you stipulate.
A few examples might be they must graduate from law school, or they must get rehabilitation and stay drug-free for three years. That might sound like a good thing, and it can be, but it could also be problematic.
It can restrict people
Let’s say that your grandad had put a sizeable inheritance in an incentive trust to encourage you to go to medical school. If he died when you were young and you complied with his wishes in order to get the money, your life would be very different. You might not have the career, friends, spouse and children you have today.
The life someone dreams of for their beneficiaries might not correspond with the life their beneficiaries dream of for themselves. Using money to make someone do what you want could prevent them from finding their true calling and from finding true happiness.
It can leave people unable to receive the help you would want to give them
Five years after you die, your granddaughter is knocked down by a hit-and-run driver. Your daughter does not have the money needed to pay for the extensive reconstructive surgery needed to rebuild your granddaughter’s smile. There is plenty in the incentive trust you created for your daughter, but because she has not yet met the conditions you placed on it, she cannot touch it.
Incentive trusts can turn out well, but you’ll want to learn more about them and the options for building in some flexibility before you commit your money to one. Experienced legal guidance can help you as you proceed.