When planning for generational wealth after a successful career, you may want to ensure that your heirs continue to lead fulfilling and productive lives despite getting sizable inheritances. There are far too many examples of trust fund babies leading dissolute lives that lead to ruin not to be concerned.
Incentive trusts are one way to deter just that problem. By incentivizing good citizenship and a strong work ethic, you may achieve your aims for your heirs. But this, too, can wind up backfiring if the restrictions or requirements you put in place are deemed to be far too controlling.
Dead-hand control over your heirs’ lives
Incentive trusts can help heirs stay on track and chart a smooth course for their lives. But they can also prove to be a source of resentment by your heirs toward you in this lifetime and even after you’re gone. This means that you must carefully select the language used in the incentive trust and be reasonable about your expectations.
What might be reasonable
Insisting that a child or grandchild obtain a college degree is not generally asking too much if their expenses are fully covered. But what if they suffer from a crippling learning disability or suffer a setback that makes attainment impossible? Including provisions for contingencies here is prudent.
You could also incentivize a trust by insisting that they either work for profit or volunteer for charitable organizations to receive disbursements from the trust. But again, some circumstances could prevent this as well, so contingencies here are again applicable.
What is not reasonable
Insisting that an heir only marry or procreate with a partner of the same race, religion or ethnic background would be unreasonable and would not stand up in court because everyone has the right to self-determination.
Finding the middle ground
You may need some professional guidance finding the right medium between properly incentivizing a trust and exercising far too much dead-hand control over your heirs’ lives.