An incentive trust is one that sets up requirements that a person has to meet before they get the money or other assets in the trust. It is one tool that you can use during your estate planning to impact how your heirs choose to live after you pass away.

Generally speaking, an incentive trust aims to create a specific type of behavior. For instance, perhaps you have an heir who has gotten into minor legal trouble and has friends who always seem to be on the wrong side of the law. You don’t want to support them if that’s the lifestyle they choose, so the trust says that they get a set amount of money for every year that they avoid arrest. This gives them a financial incentive to follow the law.

Or, perhaps you are worried that your inheritance is such that your heirs won’t even have to work. You do not want them to give up on their careers. You can then use the trust to reward them by giving them a bonus every year that they hold down a job. If they quit working or get fired, they’re not eligible for the bonus that year. There is no way for them to stop working and just live off of your money, so you give them some incentive to work hard and remain gainfully employed.

You do want to carefully consider these trusts to make sure they don’t have unintended consequences, such as cutting out an heir who is falsely arrested. But they can be useful tools when used correctly. Be sure you know how to set them up.