November 5, 2013. Perhaps due to the often opaque nature of the documents used, the common perception of a trust is that it is a rigid, formulistic document. An inanimate set of “if-then’s” that tell us when to make a distribution, and to whom. And, certainly, this is true. But they can be more than this, they can be more than simply passing down wealth and other “things.” In a real, not terribly over dramatic sense, they can be used to communicate values, and maybe even help those values stick to the next generation. For example, there are incentive trusts. It is unusual to find clients who desire that their children be trust babies; living off proceeds. Our common client is usually someone who has earned their assets through hard work and would seek to pass that ethic with their property onto the next generation.
The incentive trust, well drafted, can accomplish this by attaching distributions to some other metric or standard. Usually, this involves education or employment. For example, a trustee may be permitted to make a distribution to a beneficiary that matches what they earn through gainful employment. Simple enough. While these are often exciting for clients, who do not realize this is an option, they often can create their own unique breed of laziness. It is entirely possible that a child, instead of applying himself, will work only part-time with the expectation of a subsidy from the trust to mirror his wages. They may very well have no motivation to try harder or devote themselves to a full-time job, profession, or career. The provision can also lead to inequitable treatment of multiple children where it is generically crafted and doesn’t give thoughtful focus to individual circumstances. For example, one sibling may find themselves in a lower, but noble, occupation such as teaching; whereas another might make substantially more, say as a doctor. The well-crafted incentive trust needs to adapt to this situation, instead of applying a rigid, though well-meaning, rule that might breed animosity and inequity. For more information on wills, trusts and estate planning contact Goosmann Law Trust Counsel by emailing info@goosmannlaw.com or by calling 712.226.4000.