An incentive trust is a type of trust fund that provides support to beneficiaries if they meet specific conditions set by the grantor. The trust is designed to motivate beneficiaries to pursue specific goals or activities that the grantor feels would be in their best interest. A wide range of provisions can be included in the trust agreement, and the scope of the powers assigned to the administrator must be in line with the provisions imposed on the beneficiaries.
An incentive trust is a type of trust fund that provides support to beneficiaries in exchange for those beneficiaries who meet specific conditions set forth by the grantor of the trust. With this type of arrangement, the fund manager will disburse the funds to the beneficiaries as long as they comply with the grantor’s wishes. In the event the beneficiary chooses not to comply with those wishes, support is terminated and assets held under control for the beneficiary’s care are reallocated to other beneficiaries.
Sometimes known as a conditional trust, an incentive trust is designed to motivate beneficiaries to pursue specific goals or activities that the grantor felt would be in their best interest. The idea is to ensure that the trust estate does not limit or impede the beneficiary in pursuing those goals or activities. For example, a parent may establish an incentive trust for a child that provides monthly outlays for living expenses, with the provision that the child pursue and successfully complete a degree program at a university. To assist in reaching the goal, the parent may also authorize the trustee to disburse funds from the trust to help with educational expenses. If the child completes the title and complies with the grantor’s wishes, the monthly disbursements continue and can possibly provide additional financial support for other things, such as a down payment on a house.
The goal of an incentive trust is to provide for loved ones in a way that still motivates them to engage in activities that the grantor believes will bring them the greatest degree of happiness and satisfaction. A wide range of provisions can be included in this type of trust agreement. The plan may require that the beneficiary marry before a certain age, pursue a specific type of career, or even stipulate that the beneficiary will receive financial support as long as they care for a sibling or other relative with special needs. As long as the provisions are not prohibited by law, it is possible to place almost any type of conditions on the receipt of funds from an incentive trust.
The scope of the powers assigned to the administrator or fund administrator of an incentive trust must be in line with the provisions imposed on the beneficiaries. For example, if the financial support for the recipient is based on the pursuit of a college education, the administrator must have authorization to disburse the funds necessary to pay for college tuition and fees. To ensure that both the provisions governing beneficiary support and the scope of powers granted to the trustee are in sync, working with an attorney well-versed in trust fund establishment will facilitate the effective design of the trust and its provisions, improving changes for the grantor’s wishes to be honored.
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