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How can trusts incentivize your kids to succeed?

On Behalf of | Feb 4, 2024 | Uncategorized

Many loving parents who have built up considerable wealth are wary about leaving it to their children. They might worry it could leave them little motivation to pursue their own success through hard work.

They might even worry that a large inheritance could prove dangerous to their child, as many children in such situations have lost their health or lives to drugs, fast cars and other reckless pursuits. Thus, many wealthy parents decide to put limits on what their children will get. One way of doing this is by using an incentive trust wherein a child must fulfill certain requirements to receive payouts from the trust.

For example, they must finish their college course to receive their inheritance. Or the amount they receive will go up in relation to the grade they get. Alternatively, if you’re crafting a trust, you could relate your child’s inheritance to work or business goals. For example, they must be employed for at least 10 months every year if they are to receive an annual payout. Or they must make senior partner to receive a full amount.

Incentive trusts do not always work out well

While these trusts can function as intended, it’s worth noting that sometimes all they do is push children to do something they do not want to do. Maybe they hate their college course or job but continue just to get the money. Doing this might mean they lose the opportunity to achieve far greater success at something they are passionate about.

If you are considering using a trust to incentivize your children, it’s wise to get a third-party opinion from someone who can help you understand more. When it comes to estate and financial planning, knowledge is power.