A trust is a legal arrangement that allows a trustee to manage trust funds. The trustee is responsible for distributing funds to the beneficiaries of the trust. In a revocable trust, for example, trust funds may be distributed to beneficiaries once the person who drafted the trust, or the grantor, passes away. However, a grantor may wish to be more specific about how trust funds are distributed. This can be done by using an incentive trust.
An incentive trust is a legal arrangement that allows a grantor to set rules that limit when trust funds are distributed. Here is what you should know:
How can an incentive trust be used?
The most common reason people use incentive trusts is that it helps ensure trust funds are used for the benefit of a beneficiary and not wasted. Some conditions that can be included in an incentive trust include the following:
- Education: An incentive trust may be used to encourage a beneficiary to seek higher education. Trust funds may be distributed to a beneficiary who is enrolled in college. They may receive trust funds based on their grade point average.
- Drug use: An incentive trust may be used to limit a beneficiary’s substance use. Trust fund distribution may be stopped if a beneficiary fails a drug test.
- Real estate: An incentive trust may be used to fund a beneficiary’s first home. Trust funds may be distributed to pay for mortgage payments, utilities or other monthly expenses.
If you are ready to draft an incentive trust, you can reach out for professional legal guidance. Learn more today about your trust options.
