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Incentive Trust

An Incentive Trust addresses concerns you have about how your beneficiaries receive and manage accumulated assets.

Incentive trusts are intended to motivate positive behavior by your beneficiaries, such as educational and career achievement. For example, you might want an incentive trust to distribute assets only if your beneficiaries earn money on their own. Or, if a beneficiary earns a certain level of pay, the trust might pay out a matching amount.

Incentive trusts can pay income or principal, pay a larger amount, or pay it sooner if your beneficiary maintains a certain grade point average, graduates from college, works for the family business or donates a certain amount to charity. Some trusts will not distribute assets unless beneficiaries refrain from self-destructive behavior, such as substance abuse or gambling.

An incentive trust may be as restrictive as you want it to be as long as restrictions are not illegal. For example, you can't specify that a beneficiary must marry someone of the same race or that they must divorce their current spouse, though some advisors assert that it is possible to restrict the trust should a beneficiary marry someone of a different faith.

You can create a new incentive trust, or add incentives to an existing trust. Many kinds of trust can be used as an incentive trust such as an insurance trust, a living trust, a credit shelter trust, a dynasty trust, a generation skipping trust or a crummey trust, to name just a few. Incentive trusts usually give the trustee some flexibility for unforeseen circumstances and often provide enough "safety net" so beneficiaries do not become destitute.


The information above is general in nature and not intended as legal or tax advice. Please consult with your tax professional or attorney regarding guidance for your individual circumstances. Dunham Trust Company recommends you authorize our senior trust officers to work in tandem with your trusted financial professionals.

Such trusts are used to develop a vehicle for donations to a favorite charity, which also allows for the reduction of income taxes through a charitable deduction and favorable tax treatment at the date of the gift by non-recognition of built-in-capital gains.






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