OT: incentive trust

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Submitted by carlsbadworker on January 20, 2013 - 10:06am

Since there seems to be a lot of people who have created living trust here, I am wondering what you think of incentive trust. Basically, it is a trust that has a wide range of behavior goals to ensure that beneficiary will have financial independence beyond the inheritance monies (which we definitely need because we don't expect to have that much in the trust).

With incentive trust, you can have:
1. Age restriction for the distribution
2. Encouraging education/employment
3. Punish destructive lifestyle

I like some aspects of the incentive trust but I don't want to control my kids' life. I don't know how they will turn out either because they are still very young. And I don't think I can foresee their future needs because each of them is different and they may want to be an entrepreneur or a housewife, or whatever make them happy. I don't want to push them into any direction except financial independence beyond the inheritance monies.

Any suggestion?

Submitted by flu on January 20, 2013 - 10:35am.

Food for thought...The tighter/restrictive/complicated you make a living trust, the more burden it is to find an executor of the trust to enforce it...Every condition you put on the money means your kid will have to contact the executor to approve/dispprove of the fund...The executor can/will charge your kid a fee to talk to them, a fee to move the money around, a fee to email them back telling them money is available. a fee for etc etc etc..every single time......After you die, do you want to take a guess how much an lawyer will charge your kids for them to answer just 1 email or request for distribution?

I'll give you a hint..American service/labor ain't cheap. Just look at your last plumber's bill. Multiple that by 3x times and that's how much an attorney will bend you over...

While your intentions are good to make sure your money isn't going to be misused by your kids, I'm pretty confident that the money is more likely to be sucked away faster by everyone else that wants a hand on it.. lawyers, accountants, money managers, executors of that trust.....Unless you end up giving all that responsibility to a trusted friend or relative who's willing to do it for free, which in itself can have issues too, since they can rightfully charge an "administration" fee too and ream your kid's estates.... Personally, I'd rather take a gamble my kid will do the right think versus thinking some random person will do a better job, knowing that random person's only interest it to make money off of your estate.

Unless we're talking about millions and millions of dollars, I think you're better off educating your kids now about financial responsibility, letting the make big decisions now that demonstrate their responsibilities (or lack there of), and taking your chances directly on your kids, than taking your chances on some other stranger who will enforce a complicated estate plan throughout the years. If anyone is gonna waste your money, it's better that your kids do it than everyone else. Since you know everyone else definitely will.

Submitted by UCGal on January 20, 2013 - 3:05pm.

We did a few things to encourage goals.
- college expenses are paid directly.
- small bonus on graduation of college... $10k
- paying out in thirds... 1/3 at age 25, then at 30 and 35.

We were worried about a lump sum before they're mature enough to handle it. Something we've seen enough real world examples of.

Our goal is to live long enough that none of this is an issue.... we'll spend it on ourselves in retirement. But if that plan doesn't work, hopefully we have a good backup plan.

Edited to add that executor and backup executors are family... so only actual expenses charged.. not labor.

Submitted by Hobie on January 20, 2013 - 6:03pm.

Ditto on the 2 or 3 staggered payments depending on the emotional maturity of the kid. Best case to have full payout at 30 so they have some $ for house. Kid is a dud, them long annuity type payment to support him.

oh, and 100% ditto w/flu on all the other people with their hand out to manage things.

Submitted by CA renter on January 21, 2013 - 12:33am.

UCGal wrote:
We did a few things to encourage goals.
- college expenses are paid directly.
- small bonus on graduation of college... $10k
- paying out in thirds... 1/3 at age 25, then at 30 and 35.

We were worried about a lump sum before they're mature enough to handle it. Something we've seen enough real world examples of.

Our goal is to live long enough that none of this is an issue.... we'll spend it on ourselves in retirement. But if that plan doesn't work, hopefully we have a good backup plan.

Edited to add that executor and backup executors are family... so only actual expenses charged.. not labor.

We have something similar: 1/2 at the age of 25, 1/2 at the age of 30. Right now, we have an attorney as Trustee, but one of my childhood friends whom I trust 100% will be made Trustee within the next year or so, and we will limit the amount that can go toward any fees she wants to charge.

In our trust, we have a section titled: Trustee's Discretion on Distribution to Primary Beneficiaries. This allows them to postpone any disbursement for the following reasons:

-current divorce proceedings

-existence of a large judgement against them

-chemical abuse or dependency (5-year wait period after they're sober)

-existence of any event that would deprive the beneficiary of complete freedom to expend the distribution from the Trust estate according to his or her own desires

-if living in another country, the Trustee can withhold distribution if Trustee believes the political and/or economic conditions of such place make it likely that the money would not reach beneficiary or would be unduly taxed, seized, etc.

-judicially declared incompetency of the beneficiary

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