Incentive Trust

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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.

BREAKING DOWN '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).

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RELATED FAQS
  1. Can I put my IRA in a trust?

    You cannot put your IRA in a trust while you are living. You can, however, name a trust as the beneficiary of your IRA and ... Read Full Answer >>
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    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 >>
  3. 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 >>
  4. 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 >>
  5. 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 >>
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