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Incentive Trust

Definition

In American estate planning parlance, an incentive trust is a trust designed to encourage or discourage certain behaviors by using distributions of trust income or principal as an incentive. A typical incentive trust might encourage a beneficiary to complete a degree, enter a profession, or abstain from harmful conduct such as substance abuse. The beneficiary might be paid a certain amount of money from the trust upon graduating from college, or the trust might pay a dollar of income from the trust for every dollar the beneficiary earns.

What is 'Incentive Trust'

A legally binding fiduciary relationship in which the trustee holds and manages the assets contributed to the trust by the grantor. In an incentive trust arrangement, the trustee must adhere to specific requirements set out by the grantor regarding what conditions the trust's beneficiaries must meet in order to receive funds from the trust.

Explaining 'Incentive Trust'

An incentive trust operates as a sort of "conditional inheritance" for beneficiaries named in the trust. For example, say an aging investor wants to leave a certain proportion of her wealth to a grandchild, but she also wants to ensure that the inheritance money does not lessen the grandchild's drive to pursue a professional career or a higher education. By leaving the inheritance funds to the grandchild in an incentive trust, the grantor can specify that the funds are to be dispersed only once the grandchild has obtained an undergraduate degree, for example (or any other legally permissible requirements the grantor may wish to set out).


Further Reading


Effects of financial incentives on the breakdown of mutual trust
journals.sagepub.com [PDF]
… PSYCHOLOGICAL SCIENCE Financial Incentives 296 … The generality of this finding beyond interactions that involve the dissolution of mutual trust is a topic for further research … Camerer, CF (1997). Rules for experimenting in psychology and economics, and why they differ …

I trust you, I trust you not: a longitudinal study of control mechanisms in incentive contractsI trust you, I trust you not: a longitudinal study of control mechanisms in incentive contracts
www.tandfonline.com [PDF]
… PSYCHOLOGICAL SCIENCE Financial Incentives 296 … The generality of this finding beyond interactions that involve the dissolution of mutual trust is a topic for further research … Camerer, CF (1997). Rules for experimenting in psychology and economics, and why they differ …

Collaboration in public construction—contractual incentives, partnering schemes and trustCollaboration in public construction—contractual incentives, partnering schemes and trust
www.tandfonline.com [PDF]
… PSYCHOLOGICAL SCIENCE Financial Incentives 296 … The generality of this finding beyond interactions that involve the dissolution of mutual trust is a topic for further research … Camerer, CF (1997). Rules for experimenting in psychology and economics, and why they differ …

An investigation of consumer-perceived risk on electronic commerce transactions: The role of institutional trust and economic incentive in a social exchange …An investigation of consumer-perceived risk on electronic commerce transactions: The role of institutional trust and economic incentive in a social exchange …
aisel.aisnet.org [PDF]
… PSYCHOLOGICAL SCIENCE Financial Incentives 296 … The generality of this finding beyond interactions that involve the dissolution of mutual trust is a topic for further research … Camerer, CF (1997). Rules for experimenting in psychology and economics, and why they differ …

Managerial incentives: implications for the financial performance of real estate investment trustsManagerial incentives: implications for the financial performance of real estate investment trusts
onlinelibrary.wiley.com [PDF]
… PSYCHOLOGICAL SCIENCE Financial Incentives 296 … The generality of this finding beyond interactions that involve the dissolution of mutual trust is a topic for further research … Camerer, CF (1997). Rules for experimenting in psychology and economics, and why they differ …

Trust and incentives in principal-agent negotiations: The 'insurance/incentive trade-off'Trust and incentives in principal-agent negotiations: The 'insurance/incentive trade-off'
journals.sagepub.com [PDF]
… PSYCHOLOGICAL SCIENCE Financial Incentives 296 … The generality of this finding beyond interactions that involve the dissolution of mutual trust is a topic for further research … Camerer, CF (1997). Rules for experimenting in psychology and economics, and why they differ …

Public trust, the law, and financial investmentPublic trust, the law, and financial investment
www.sciencedirect.com [PDF]
… PSYCHOLOGICAL SCIENCE Financial Incentives 296 … The generality of this finding beyond interactions that involve the dissolution of mutual trust is a topic for further research … Camerer, CF (1997). Rules for experimenting in psychology and economics, and why they differ …

“Not just for the money?” How financial incentives affect the number of publications at Danish research institutions“Not just for the money?” How financial incentives affect the number of publications at Danish research institutions
www.tandfonline.com [PDF]
… PSYCHOLOGICAL SCIENCE Financial Incentives 296 … The generality of this finding beyond interactions that involve the dissolution of mutual trust is a topic for further research … Camerer, CF (1997). Rules for experimenting in psychology and economics, and why they differ …

The governance of CEO incentives in English NHS hospital trustsThe governance of CEO incentives in English NHS hospital trusts
onlinelibrary.wiley.com [PDF]
… PSYCHOLOGICAL SCIENCE Financial Incentives 296 … The generality of this finding beyond interactions that involve the dissolution of mutual trust is a topic for further research … Camerer, CF (1997). Rules for experimenting in psychology and economics, and why they differ …



Q&A About Incentive Trust


What are some common types of incentive trusts?

Some common types include educational, substance abuse, and business incentives.

How do you set up an incentive trust?

You can set up one by creating a will with specific provisions for how you would like your money distributed after your death.

How does an incentive trust operate?

Incentive trusts operate as conditional inheritances.

What is an incentive trust?

An incentive trust is a legally binding fiduciary relationship in which the trustee holds and manages the assets contributed to the trust by the grantor.

Who might use an incentive trust?

Anyone who wants to encourage or discourage certain behaviors by using distributions of income or principal as an incentive.

What are some conditions that can be set for beneficiaries of an incentive trust?

The grantor can specify any condition he or she wishes, such as obtaining a degree, marrying, having children, etc.

Why might someone use an incentive trust?

Someone may want to encourage a beneficiary to complete a degree, enter a profession, or abstain from harmful conduct such as substance abuse.

Who is responsible for managing funds in an Incentive Trust?

The trustee must adhere to specific requirements set out by the grantor regarding what conditions beneficiaries must meet in order to receive funds from the trust.