The wealthy have always struggled with how to incentivize their children to work hard for themselves and not just rely on family wealth and an inheritance.
One common concern among wealthy people is that leaving their wealth to their children may cause them harm. Many fear their children will stop working for themselves and just spend their parents' money.
There are many examples of wealthy heirs doing just that.
Recently, The Economist's 1843 Magazine looked at how wealthy people have addressed this dilemma over the centuries in "How to Make Inheritance an Incentive."
Andrew Carnegie, for example, famously left nothing for his heirs.
Today, using incentive trusts is a common method.
These trusts only give money to beneficiaries when certain benchmarks are met, such as getting a college degree and getting a job with trust payments tied to salary. How well these incentive trusts work, however, is up for debate.
Oftentimes, they have the unintended consequence of punishing children for doing things their parents would actually approve. For example, by giving a child more money from the trust based on how much they earn might discourage them from taking an easy or part-time job, but the child would also be discouraged from taking a lower paying public service job.
Incentive trusts can be written in such a way that heirs are encouraged to do appropriate things, but they need to be flexible.
It can be a good idea to give the trustee some discretion to make trust disbursements in accordance with conduct the trustee thinks the parents would have approved.
For more information about estate planning in Orlando, FL (and throughout the rest of Central Florida), visit our estate planning website and be sure to subscribe to our complimentary estate planning e-newsletter while you are there.
Reference: 1843 Magazine (Oct. 13, 2016) "How to Make Inheritance an Incentive."