Many wealthy parents in the District of Columbia are afraid that giving their children an outright inheritance will keep them from meeting their potential. Fortunately, estate planning can help parents provide an inheritance to their children while encouraging them to find their own way in the world. Trusts may be used to accomplish this goal.
An incentive trust rewards beneficiaries for completing a task set out by the creator of the trust. For instance, if a beneficiary obtains a college degree, the trust may provide for the distribution of a predetermined amount of money to him or her. In other cases, trustees may be directed to provide a distribution each year to a beneficiary in an amount equal to his or her annual income. Of course, even after such provisions are drafted, exceptions can be included in order to account for non-monetary accomplishments, such as working for a non-profit organization.
In other cases, parents may direct that distributions be made at certain ages or after certain events. For instance, a beneficiary may get a set amount upon marriage or the birth of a child. Increasing amounts may be given at certain ages.
The trust may also withhold direct distributions to a beneficiary. Instead, the trustee can pay expenses on behalf of a child. Student loans, mortgages and/or anything else the creator of the trust wishes to be covered are some examples. So long as the trust's provisions do not violate state or federal law or public policy, the options are endless.
Whatever arrangement makes District of Columbia parents most comfortable may be used. This is due to the versatility of estate planning. However, it is important to make sure that the documents are properly drafted and executed in order to deter challenges to the provisions of the trust.
Source: Forbes, "5 Tips Before You Leave Your Kids an Inheritance", Robert Pagliarini, May 12, 2014