Quote of the Day - Sometimes the poorest man leaves his children the richest inheritance.
If you're paying your taxes and not otherwise using unscrupulous tax shelters, then you might want to consider how what you've earned gets passed on to your children, grandchildren and heirs. There a number of alternatives out there, including generation-skipping trusts such as dynasty trusts, as well as other planning mechanisms to consider. But the New York Times points out a "new" (it's been around for about fifteen years) twist to estate planning called the incentive trust.
The idea behind the "incentive" helps parents or grandparents avoid creating trust babies who inherit money, but lose their elders' drive that led to the fortune in the first place. Some incentive trusts dole out "dollar for dollar" - your heirs will receive a dollar for each dollar they earn. There are other provisions that allow for partial, lump-sum payments upon achieving certain life milestones, such as graduations, religious events, marriages, births and the like. Still others are tied to performance of some type such as obtaining a job, a promotion, even positive performance reviews.
There are no standard set of guidelines, and to be sure it's important to consider flexibility in the terms of the trust to allow for differences in your heirs' earning capacities, interests and unfortunate events like an injury or disability that may prevent achieving the measurements detailed above. Many trusts allow for a safety net as a catch-all for heirs that may fall outside strict achievement guidelines, but nonetheless within the category of a deserving heir.
Critics, on the other hand, complain that incentive trust end up exerting too much control over the lives of the heirs.
In some ways, these trusts are a variant of an ethical will, and constitute an effort by the parents and grandparents to pass along their values to their children and grandchildren. Since very few incentive trusts have been challenged in court, there's little guidance for lawyers out there trying to put these wishes into words. Contrary to most legal documents, however, flexibility may be a crucial key to the success of the trust and help avoid litigation. Perhaps most important, choosing a strong, but flexible trustee who understands the family dynamic will allow heirs to receive the family fortune, and at the same time ensure that the heirs earn their way instead of inheriting it.
In other words, if you had to choose a second father, mother or guardian for your heirs, who would you pick to manage your money and transfer it to your heirs according to your wishes?