Living Trust Incentive Provisions

This edition of Whitney’s Tax Files answers a question from a client who asks, “How can I stop my kids from blowing the money after I die?” Well, the statistics show that most people go through their inheritance after about ten months, and most estate plans, the standard forms that you see, they say, “Give my kids all the income every year, and then they can have a third, a third, a third at this age, that age, and the other age.” Essentially, we are not providing any incentive for our children, and so long as our children survive to the next year, they get more money, whether they’re being responsible or not, so there’s a couple things that we can do to protect them from themselves.

I see a lot of clients liking incentive-types of provisions, so an incentive provision would say instead of, “Give my kids money every year,” it would say, “Let’s match my children’s adjusted gross income by 50 percent,” or whatever percent is appropriate. Now, we don’t want to discourage the children from entering good lifestyle choices. If the child is a police officer or in the military or joins the clergy, or is a schoolteacher, we don’t want to discourage good lifestyle choices that are responsible, so in those cases, we can match at a higher rate. But what if the child makes money, a lot of money, but has two or three DUIs or gets in trouble with the law or is doing acts of dishonesty or acting irresponsibly? Well, we can give flexibility in the trust so that the trustee can reduce their matching provisions, so this is a way to guide the children after you’re dead to encourage them to be responsible, contributing members of society.

Okay. Well, if these types of provisions are interesting to you, we can certainly help you with this, so give us a call at (480) 776-6055.





About the Author Whitney L. Sorrell, JD, CPA, MBA

Whitney Sorrell is a former IRS Revenue Agent turned tax attorney and CPA.  Mr. Sorrell’s law practice focuses on business organizations and federal tax planning, IRS dispute resolution, asset protection planning for small business owners, and estate planning for nigh net worth individuals.

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