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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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