By: Martin M. Shenkman, CPA, MBA, JD
A trust is an arrangement in which you (grantor) establish a legal arrangement (trust) the details of which are set forth in a document (trust agreement) in which a person manages the trust (trustee) for the benefit of the people you name, e.g. a child (beneficiary). When an incentive trust is used the purpose and structure of the trust are intended to motivate (provide incentive) the beneficiary. For example, if the beneficiary earns $30,000 the trust may match it. If the beneficiary does not earn any income the trust may pay nothing, or perhaps only provide for medical care. There are a host of issues in planning such a trust to really accomplish its goals. A major problem is defining what types of behavior deserve reward. Too often incentive trusts reward economic return. What of the beneficiary devotes her life to charitable activities where little income can be earned, while another child sets up a business of questionable moral benefits and earns a substantial income. The child making the greatest contribution to society gets little reward, and the child arguably damaging society receives the most reward.
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