You want to leave money to your children, but the sheer amount of wealth is potentially problematic. You’re going to leave them enough that they could each just live off of the trust. You’re worried that such a windfall might kill their motivation. You want to help them, financially speaking, but you don’t want to hold them back in other ways.
One option you have is to consider an incentive trust. The goals and incentives that are built into it ensure that they only get your money if they stay motivated.
For instance, maybe you worry that a child won’t go to college at all, knowing he or she has enough money waiting that getting an education and a job isn’t required. You could craft a trust that stipulates how much will be paid out and that it only pays out when your child completes college and graduates.
Or, perhaps you want your child to work and understand the value of a job. You could create an incentive trust where how much the child earns every year dictates how much is paid out. If your child just makes $15,000 per year in a part-time job, he or she only gets $15,000 more. If the child starts a company and brings in $200,000 per year, he or she gets a total of $400,000 when the trust matches the earnings. You still give your children far more money than they would have had on their own, but only if they work.
These are just two examples, but you can see how important it is to understand all of the various ways that trusts function and what legal options they provide.
Source: Barron’s, “Incentive Trusts Can Keep Your Heirs Motivated,” Amy Feldman, accessed March 30, 2017