Gray & Harasym, LLP | San Luis Obispo CA CPA

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A Trust to Help Instill Positive Values in Children


Most parents want their children to become independent, hard-working and responsible adults. They want to pass on their values to their children, but worry that these values might not transfer easily to the next generation. If you are a parent with substantial assets, these worries can become magnified by concerns that the assets you intend to pass on to your children may act as a disincentive to their reaching their full potential.

However, establishing a family incentive trust can allow you to distribute wealth to your children in a responsible and structured manner while instilling positive values.

What an Incentive Trust Is

An incentive trust is a legal entity that holds property for the benefit of your children, grandchildren, or other heirs. In the trust document, you appoint a trustee and outline the terms regarding when and under what circumstances the trust will make distributions to your children. You have a lot of flexibility when it comes to describing the circumstances. For example, you could require beneficiaries to achieve certain educational goals -- obtaining an undergraduate degree, for example -- before they become eligible to receive any money from the trust. Or, you could require that beneficiaries refrain from certain activities in order to receive distributions.

Like other trusts, you can arrange for professional management of the incentive trust's assets by an experienced fiduciary.

What It Can Achieve

The trust allows you to exercise a level of control you would not have if your assets were distributed to your heirs outright. Your control over crafting the trust means that distributions will be made from the trust only on your terms.

Consider These Benchmarks

Most parents and grandparents tailor the trust to fit family needs and personal objectives. These may include encouraging beneficiaries to:

Attain specific educational goals. You can use an incentive to encourage your children to achieve certain goals for their education, such as maintaining a certain grade point average or earning an undergraduate degree.

Avoid harmful behaviors. Alcohol and substance abuse issues are not uncommon among young people. Some parents may have concerns that inheritances for their children could promote such behavior. In such cases, parents could choose to use an incentive trust so that their children would receive trust distributions only if they do not engage in specifically stated harmful behaviors.

Pursue charitable activities. Many parents are actively involved in a variety of charitable causes and would like to see their children express a similar interest in volunteer work. Parents who want to encourage that behavior in their children use the incentive trust to tie trust distributions to the degree their children perform volunteer work, make charitable donations, or pursue other volunteer activities.

Promote self-reliance. Parents who want their children to work hard and to understand the importance of self-reliance often use an incentive trust to match a percentage of the income the children earn. Other parents use incentive trusts to reward children who choose to work in a family business