Recent headline news reported that actor Philip Seymour Hoffman left his entire estate to his girlfriend and nothing to his three young children, therefore disinheriting them. It is reported that he did not want to create “trust fund kids”, or kids that live off a trust and never have to earn a living for themselves. Through Mr. Hoffman’s planning, there is no provision for financial support should his childrens’ circumstances change in the future.
If you are concerned about your children living off an inheritance they may receive from you, there are other ways to promote responsible financial lifestyles without disinheriting them. One way is to set up a Family Incentive Trust. This type of trust can provide for the basic needs of your family, such as health, education, maintenance and support for under age children. Over and above basic needs for young children, a Family Incentive Trust can promote success within your family and reinforce the values that matter to you.
Communicating your trust provisions that ensure your family values to both the trustee and the beneficiaries is essential for the success of the Family Incentive Trust. With understanding, the intentions and restrictions of the trust will be greater realized. The trust should be presented as a reward to the beneficiaries, rather than a form of punishment or control.
The Family Incentive Trust could also provide specific instructions on how to pay for a child’s undergraduate education. An example of this would be a stipulation that a child’s educational expenses can be paid from the trust if the child is a full-time student maintaining a certain grade point average. Graduate studies and trade school expenses can also be provided for in the trust. If you, the Trustor, wants to promote certain types of careers such as an architect, engineer, doctor or a lawyer, then you may include specific provisions in the Family Incentive Trust on how to pay for advanced degrees.
Once the child is employed and earning a living, then the Family Incentive Trust can provide that the trust matches the income or a portion of the income of the child. This is an effective strategy for parents who worry that their children lack a work ethic because they have grown up with money. You may want to provide incentives to children who choose careers in the public sector such as a teacher, police officer or fire fighter. For instance, the trust could supplement the income of those beneficiaries to a greater extent.
Other examples of how a Family Incentive Trust could work would be to match whatever a child has saved toward a down payment on a home, or fund a retirement plan for a child. If a child is caring for another family member such as a young child or an elderly parent, and is unable to work, then distributions can be made from the trust fund to provide income or pay for respite care for the child providing the care.
Promoting philanthropy may be important to you and is another way a Family Incentive Trust can be used. If a child wants to contribute to a charitable organization, then guidelines can be laid out in the trust as to how trust funds can be used for this purpose.
You could also structure the Family Incentive Trust to act as a bank and make loans to a child under reasonable terms, or to assist the child in starting a business. The possibilities are endless.
Disinheriting your children is a drastic measure to ensure that they become socially responsible adults. A Family Incentive Trust can be used to promote and encourage your family values and give rewards if your children become contributing and productive members of our society.
A qualified estate planning attorney can assist you in setting up a Family Incentive Trust that carries on your family values through the generations to come.
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