Incentive Trusts: Controlling Your Money from the Grave
A recent New York Post article discusses the estate of the late Maurice Laboz of Manhattan, who left $20 million to his two daughters, Marlena and Victoria, 21 and 17 respectively, to inherit when they turn 35. However, Mr. Laboz has also provided a number of ways in which the girls can gain access to some money in the meantime.
For example, if Marlena graduates from “an accredited university” and writes a short essay, to be approved by the trustees, she will receive $750,000. The Testator also included a provision which will triple their salary each year, providing an incentive for them to work hard and earn a good salary, and not just to rely on their inheritance.
There are also restrictions for Mr. Laboz’s daughters. He has included a term of the trust such that, if they decide to have children and not to work outside the home, they will receive 3% of the value of their trust every year. But, if they have a child born out of wedlock, they will not receive any of the money allotted for this purpose.
I recently tweeted this post from Elder Law Answers, which discusses incentive trusts. As illustrated by Mr. Laboz’s trust for his daughters, an incentive trust is a way to provide for your loved ones, while retaining some control over the way the money is spent. Such trusts may have very specific instructions to ensure that the trust funds support positive behavior, and discourage unproductive or harmful behavior. Some of the types of incentives can include rewards for degrees, or matching employment earnings, as discussed above. An incentive trust might also include funds to match the down payment on a house, or to reward doing charitable or volunteer work. An incentive trust may also try to deter harmful behavior, such as drug use, by providing a reward for undergoing treatment for addiction.
As noted by BMO Nesbitt Burns, incentive trusts have seldom been used in Canada and can be difficult to design and administer. In particular, selection of Trustees for an incentive trust is critical, due to the great deal of discretionary powers they can exercise over distribution of trust funds. But if you have good advice on setting up a Trust, it may be a way to ensure that your loved ones’ inheritance will be well spent.
Thanks for reading.