What Is An Incentive Trust?

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What Is An Incentive Trust? | Chicago Estate Planning Attorney Mario Godoy

Protecting the financial security of your loved ones can be particularly stressful if someone you care about is prone to bad decision making and irresponsible behavior. While you want to provide for their future, you may also be fearful that receiving an inheritance could lead to more poor choices. With this type of trust, you set up an incentive for your heir to do something or to not do something in order to receive their inheritance. Setting up an incentive trust allows you to establish the terms for someone you care about to inherit money, property or other assets that are specified in the trust.

An incentive trust is often used in wealthy families to encourage young heirs to have a productive lifestyle and not squander their inheritance. However, inheritance trusts can be used in any situation where you want your assets dispersed only if certain conditions are met.

How To Set Up An Incentive Trust in Illinois

To be effective and legally enforceable, the person who is setting up the incentive trust, the grantor, must make sure it contains certain roles and establishes specific criteria.

1. Name A Trustee
The trustee assumes a critical role in an incentive trust because they will be determining if your heir meets the criteria you established to receive their inheritance.

2. Choose Type Of Trust 
Illinois does not legally recognize a document called an incentive trust, but there are several types of trusts that can be created as incentive trusts:

• Revocable Living Will
During the grantor’s lifetime, the grantor could retain control over the assets in the trust, add or remove property or change the trustee or the beneficiaries.

• Irrevocable Living Trust
The grantor cannot alter an irrevocable trust once it is executed.

• Testamentary Trust
The trust goes into effect after the grantor’s death.

3, Establish Incentive Criteria 
The incentives you create for your heir to receive their inheritance must be specific and measurable. Specific, objective criteria will protect both your heir and your trustee so that your wishes can be respected and followed – and your trust is not subject to legal challenges.

4. Name Beneficiaries 
Your incentive trust can apply to all your heirs or only one specific heir.

Legally enforceable incentive trusts can be established with the help of an experienced will and trust attorney who can advise you on the best options for your specific situation. To talk to a will and trust attorney in Chicago or Lombard about how to make an incentives trust, contact the Estate & Probate Legal Group at 630-800-0112