Misplaced Pages

Wills, trusts and estates
Part of the common law series
Wills
Legal history of wills Joint wills and mutual wills Will contract Codicil Holographic will Oral will Sections Attestation clause Residuary clause Incorporation by reference Contest Testamentary capacity Undue influence Insane delusion Fraud No-contest clause Property disposition Lapse and anti-lapse Ademption Abatement Satisfaction of legacies Acts of independent significance Elective share Pretermitted heir
Trusts
Express Resulting Constructive Common types Bare Discretionary Accumulation and maintenance Interest in possession Charitable Purpose Incentive Other types Protective Spendthrift Life insurance Remainder Life interest Reversionary interest Testamentary Honorary Asset-protection Special needs Supplemental needs Governing doctrines Pour-over will Cy-près doctrine Hague Convention (conflict law) Application in civil law Dishonest assistance
Estate administration
Intestacy Testator Probate Power of appointment Simultaneous death Slayer rule Laughing heir Advancement Disclaimer of interest Inheritance tax
Related topics
Advance directive (Living will) Blind trust Forced heirship Totten trust
Other common law areas
Contract Tort Property Criminal law Evidence
v t e

In American estate planning parlance, an incentive trust is a trust designed to encourage or discourage certain behaviors by using distributions of trust income or principal as an incentive. A typical incentive trust might encourage a beneficiary to complete a degree, enter a profession, or abstain from harmful conduct such as substance abuse. The beneficiary might be paid a certain amount of money from the trust upon graduating from college, or the trust might pay a dollar of income from the trust for every dollar the beneficiary earns.

Although incentive trusts have apparently become more common in the early 21st century, a 2007 survey found that less than one-third of wealthy Americans attach conditions to the distribution of their estates. According to Joshua Tate, an assistant professor at SMU Dedman School of Law, incentive trusts pose a problem of inflexibility: "because the settlor cannot foresee all potential eventualities or circumstances and take them into account in the trust, the terms of the trust can prove to be a burden for the beneficiaries." Eileen Gallo, a noted psychotherapist, has argued that, although incentive trusts may be effective in changing behavior, they may in fact be damaging to the beneficiaries, in that they rely on external motivation to encourage activities that should be autotelic in nature. The seeming popularity of incentive trusts, however, is reflected in the many websites created by estate planners to market them.

References

• Robert Frank, The Wrong Way to Leave Money to Heirs, The Wealth Report, Wall Street Journal Online, May 15, 2007.
• Eileen Gallo, A Psychotherapist Looks at Incentive Trusts, Journal of Financial Planning (Dec. 2004).
• Joshua C. Tate, Conditional Love: Incentive Trusts and the Inflexibility Problem, 41 Real Prop., Prob. & Tr. J. 445 (2006).
• Julia Kagan, Trust & Estate Planning.
• Wells, Marble & Hurst, PLLC, Incentive Trusts: An Idea Whose Time Has Come (and Gone?).

• Wills and trusts
• Common law
• Inheritance