Incentive Trust

AAA

DEFINITION of 'Incentive Trust'

A legally binding fiduciary relationship in which the trustee holds and manages the assets contributed to the trust by the grantor. In an incentive trust arrangement, the trustee must adhere to specific requirements set out by the grantor regarding what conditions the trust's beneficiaries must meet in order to receive funds from the trust.

INVESTOPEDIA EXPLAINS 'Incentive Trust'

An incentive trust operates as a sort of "conditional inheritance" for beneficiaries named in the trust. For example, say an aging investor wants to leave a certain proportion of her wealth to a grandchild, but she also wants to ensure that the inheritance money does not lessen the grandchild's drive to pursue a professional career or a higher education. By leaving the inheritance funds to the grandchild in an incentive trust, the grantor can specify that the funds are to be dispersed only once the grandchild has obtained an undergraduate degree, for example (or any other legally permissible requirements the grantor may wish to set out).

RELATED TERMS
  1. Special Needs Trust

    A legal arrangement and fiduciary relationship that allows a ...
  2. Condition Precedent

    A legal term describing a condition or event that must come to ...
  3. Personal Trust

    A trust created for a person or persons. Personal trusts can ...
  4. Blind Trust

    A trust in which the executors have full discretion over the ...
  5. Irrevocable Trust

    A trust that can't be modified or terminated without the permission ...
  6. Beneficiary

    Anybody who gains an advantage and/or profits from something. ...
RELATED FAQS
  1. How does the trust maker transfer funds into a revocable trust?

    Once a revocable trust is created, a trust maker transfers funds or property into the trust by including them in a list with ... Read Full Answer >>
  2. What is the difference between a revocable trust and a living trust?

    A revocable trust and living trust are separate terms that describe the same thing: a trust in which the terms can be changed ... Read Full Answer >>
  3. How exactly does one go about revoking a revocable trust?

    The basic steps involved in revoking a revocable trust are fairly simple, and include transfer of assets and an official ... Read Full Answer >>
  4. What is the difference between a revocable trust and an irrevocable trust?

    An irrevocable trust and a revocable trust are differentiated through the ability to change the trust. With an irrevocable ... Read Full Answer >>
  5. What is a family Limited Liability Company (LLC)?

    A family limited liability company (LLC) is formed by family members to conduct business in a state that permits such form ... Read Full Answer >>
  6. How is maintenance of standard of living for survivors accomplished in estate planning?

    Estate planning is an integral component of comprehensive financial planning, as it allows individuals and couples to maintain ... Read Full Answer >>
Related Articles
  1. Retirement

    Ethical Wills Share Final Thoughts With Heirs

    This document allows a testator, the person making the will, to leave a personal legacy.
  2. Insurance

    Encouraging Good Habits With An Incentive Trust

    Money can be a powerful motivator - why not use it to teach your heirs positive lessons?
  3. Retirement

    Establishing A Revocable Living Trust

    This arrangement allows you to have more control over your estate - both before and after your death.
  4. Options & Futures

    Getting Started On Your Estate Plan

    With some preparation, you can save your heirs from paying a hefty estate tax. Here are some tips.
  5. Taxes

    An in Depth Look at How Inheritances Are Taxed

    The tax implications of an inheritance can be complex. Here's what beneficiaries need to know.
  6. Professionals

    How Advisors Can Assist Clients with Inheritances

    Leaving an inheritance can be complicated and even a burden on the recipient. Here's how advisors can help.
  7. Professionals

    How Financial Advisors Can Woo Wealthy Clients

    To woo wealthy clients, offer the resources they need and design a strategic website and marketing plan to bring those desired clients into your firm.
  8. Professionals

    Do Big Inheritances Do More Harm Than Good?

    Most wealthy parents plan to pass on their wealth, but few have had discussions with their heirs. Financial advisors should broach the issue with clients.
  9. Personal Finance

    Top Tips for Helping Clients Sustain Wealth

    High-net-worth individuals face a number of potential challenges when passing wealth down, but it is possible to build generational wealth.
  10. Professionals

    How Advisors Can Help Couples Agree on Finances

    Financial advisors often end up being mediators when it comes to working with couples. Here are some ways to get them on the same financial path.

You May Also Like

Hot Definitions
  1. Unfair Claims Practice

    The improper avoidance of a claim by an insurer or an attempt to reduce the size of the claim. By engaging in unfair claims ...
  2. Killer Bees

    An individual or firm that helps a company fend off a takeover attempt. A killer bee uses defensive strategies to keep an ...
  3. Sin Tax

    A state-sponsored tax that is added to products or services that are seen as vices, such as alcohol, tobacco and gambling. ...
  4. Grandfathered Activities

    Nonbank activities, some of which would normally not be permissible for bank holding companies and foreign banks in the United ...
  5. Touchline

    The highest price that a buyer of a particular security is willing to pay and the lowest price at which a seller is willing ...
  6. Himalayan Option

    An exotic equity option belonging to a class known as mountain range options. Himalayan options are based on a basket of ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!