WEALTH WISE

A Guiding Hand After You are Gone
Pass your wealth and values on to loved ones with an incentive trust

Jane*, a widowed mother of two teenagers, has amassed a sizable estate thanks to running a successful business and making smart investment choices, as well as receiving life insurance proceeds. Since her husband's death, Jane has raised her children alone and has tried to instill in them the same values and standards as her parents instilled in her.

However, she has seen far too often how inheriting a large amount of money can have a detrimental effect on a young adult's life, and she's worried about what might happen if her children should inherit her wealth before they've gained experience and maturity. Jane discusses her concerns with her estate planning advisor, and he recommends using an incentive trust.

Jane's criteria
Through an incentive trust Jane can establish specific criteria for her children to meet before becoming eligible to receive the trust's assets. This is a more attractive option to Jane than simply setting a mandatory age for them to begin receiving her estate's assets.

Jane wishes to stress three areas in her incentive trust:

  1. Educational goals. The trust's distributions can be contingent on, or limited based on, the children graduating from high school and college and maintaining a certain grade point average.
  2. Money management. The trust can be set up to spread distributions over a set amount of time to enable the children to mature and gain knowledge on how to manage their finances.
  3. Philanthropic activities. A long-time believer in charitable giving, Jane can build matching donations into the trust to encourage the children to participate in philanthropic activities, such as setting up a foundation or volunteering for community service.

Two additional areas an incentive trust can address are beneficiaries' personal lifestyle choices and professional accomplishments. For instance, to address the former, you can structure the trust to prohibit or limit payouts if a beneficiary abuses drugs or alcohol. And to address the latter, you can increase a beneficiary's payout if he or she, for example, joins the family business.

The trust's administrator
After learning the benefits of an incentive trust, Jane's first question is: Who will administer the trust to ensure Jane's wished are carried out? Her estate planning advisor explains that Jane must choose a trustee — an individual, such as a trusted family member, friend or professional advisor, or an institution, such as a bank or trust company. She can also choose to name both an individual and an institution.

If Jane chooses an individual trustee, that person will be more familiar with her family and may have better insight into her standards and values. A professional trustee, on the other hand, has impartiality on his or her side because a professional trustee doesn't have a personal relationship with the beneficiaries. An individual trustee can hire a professional advisor if he or she feels the need to do so.

The happy ending
Jane is happy that her children will be financially secure after she's gone. With an incentive trust, she has the peace of mind that her standards and values will continue to live on in her children. If you'd like to learn more about incentive trusts, contact your tax and legal advisors.

Consult an Advisor
Your Fifth Third Private Bank advisor can help you make sure wealth and your values are passed on.

Fifth Third does not provide legal advice. Consult with your attorney for advice pertinent to yout personal situation.

* The circumstances reflected in this illustration are representative of actual clients of Fifth Third Private Bank. To ensure the privacy of our clients, the names and some of the facts have been changed.