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Incentive trusts can help protect your children from themselves

When you're developing your estate plan, you likely want your children to inherit some of the assets that you've worked so hard to accumulate or that have been passed down to you from previous generations to care for. However, what if you don't believe that one or more of your children, even as adults, will handle a generous inheritance wisely or they're too young for you to know how they'll turn out as adults?

There are countless stories of people not only blowing through all of their family money, but destroying their lives in the process. That's why many people choose to place their money in inheritance trusts for their children.

Generally, this involves requiring something from the beneficiary in order to receive the money that's been put in the trust for them. The trustee who's appointed to oversee the trust is directed to ensure that the stated conditions are met before dispensing any money.

These incentive trusts can help parents ensure that their kids will go out and earn a living, have achievements they can be proud of and pass on the family values to the next generation. As Warren Buffet said, a child's inheritance should be "enough money so that they feel that they could do anything, but not so much that they could do nothing."

When he turned 82, the multi-billionaire gave each of his children about $600 million in stock from his company to put into their individual charitable foundations, saying that he'd been pleased with how they had been managing these foundations.

Sometimes, the disbursement of trust assets is tied to the income of the beneficiary. For example, if someone earns $100,000 per year, he or she gets $100,000 annually from the trust. A parent may require that a child pursues higher education.

Of course, there may be other factors to consider. What if one of your children would like to devote his or her life to doing volunteer work, be a stay-at-home parent or care for an aging or disabled family member? The individual needs, abilities and interests of each child have to be considered.

Drafting incentive trusts can be difficult. So can choosing the appropriate trustee to manage and dispense the money as you designate. A Maryland estate planning attorney can help you set up an incentive trust that reflects your wishes and the values you want to pass on to your children.

Source: The Balance, "Do Incentive Trusts Work?," Patti Spencer, accessed Sep. 07, 2017

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