July 12, 2016
Michigan Incentive Trusts | How to Pass Values to the Next Generation
When we sit down with a family to discuss estate planning, there is more to the discussion then just where the assets will go and to who. It is important to discuss not only how, but more importantly why.
The “Why” Of Estate Planning
Before you drop thousands of dollars in developing a revocable living trust based plan, it’s important to think about why you’re doing the planning in the first place. Oftentimes, it is about protection. Protecting beneficiaries and loved ones from not only their poor financial mismanagement, but also protecting against the outside environment (law suits, creditor actions, divorces, etc).
Incentives in Living Trusts
A great way to pass the values of one generation to the next is through the use of incentives in the trust. An incentive is designed to encourage or discourage certain behaviors in the beneficiaries by using distributions of trust income or principal as a tool to try to exert control over the beneficiary. Basically, these are inheritances that have strings attached to receiving the inheritance.
Many Michigan families use incentives as a way to pass values and try to shape character of the beneficiaries.
For example, including a provision that gives a bonus to a beneficiary if they graduate college within 4 years.
Examples of Incentive Trust Purposes
There are a variety of ways to use incentive trust language inside of living trusts in Michigan. Here are a few examples.
The use of incentive trust language is commonly used for educational purposes. The idea is to provide additional support to those heirs who wish to pursue advanced degrees, finish college in a certain period of time, or push beneficiaries into certain fields of study. Incentive language could even be used to reward outstanding achievement or scholarship.
Moral and Family Values
Another use of incentives in revocable living trusts revolve around passing down family values by providing income or support payments to heirs who choose to follow a certain lifestyle. For example, staying at home with children. There could also be additional bonuses based on the number of children or if a family adopts children.
On the flip side, there could be a removal or less benefits for those beneficiaries who fail to meet certainly requirements. An example of this would be with holding benefits from those heirs who might be convicted of a crime or fail a drug test.
Business or Career Choices
Some of our business owner clients want to reward the entrepreneurial spirit by using incentives in revocable living trusts to help their beneficiaries start up or commit to carrying on the family business. The incentives in the trust could be tailored to encourage or discourage career choices and offer financial support to beneficiaries who opt to follow paths that are personally and socially rewarding, but might not be as financially lucrative.
Charitable or Religious Choices
Some clients wish to reward their beneficiaries who make certain religious or charitable choices. By building incentives into revocable living trusts, beneficiaries can receive extra support for dues or other costs associated with religious participation, missionary work or charitable work. Another example would be matching funds for heirs’ contributions to favored charitable, religious or non-profit organizations.
Things to Remember about Incentive Trusts
There are a few things to keep in mind if you plan to include incentive language inside of a revocable living trust in Michigan.
By placing incentive’s in the trust you are limiting some of the flexibility that the trustee has in making discretionary distributions. To much structure does not allow the trustee the flexibility if life throws an unforeseen curveball.
In building in incentives in a revocable living trust it is important to follow a few guidelines. First, keep the planning clear and concise with the goals of the incentives. Next, make sure there is clear and measurable criteria. Third, be careful who you choose as a trustee to administer the trust. Last, try to build in flexibility into the document.
Contact a Michigan Certified Elder Law Attorney to Set up an Incentive Trust
Give our law firm a call if you’re a Michigan resident looking to build in incentives in your revocable living trust.