If you have considerable wealth, you might worry about its effect on your kids. You might feel they lack some of the hunger for success that drove you forward at their age.
You may have read about the uber-rich giving most of their money to charity and leaving only a relatively small amount to their kids. But what if you are not quite in that league? What if you still want to leave your inheritance to your kids but need to find a way to encourage them to push harder?
Consider an incentive trust
Trusts have many benefits, one being that you can set the terms under which they pay out. For example, you could set it up only to pay out when your children are old enough to handle their inheritance responsibly. Or only if they reach a certain level of success, such as completing their studies or earning a specific wage.
Incentive trusts can be useful for this, but they can also prove tricky. Here is why:
Your plans for your kids might not be what is best for them
All caring parents have some kind of wish for their children. Yet think about all the kids who went on to be successful by doing something entirely different. Maybe your child could be a good lawyer, but what if they could be a fantastic DJ? Is it right to incentivize them away from this?
It can also tie up money they need for other things
What if your child or grandchild had an accident or illness requiring massive medical expenditure, above and beyond what their health insurance covers? Wouldn’t you rather they could access the inheritance to cover this even if they had not met the conditions you set out?
Getting your estate plan right is complicated. That is why you should seek legal help to examine the pros and cons of the different options available.