Often, the client calls him the Monday after Thanksgiving, said John Olivieri, a New York City estate planning lawyer.
The client has some assets to leave his family after he dies, but the holiday triggers concerns: What if my daughter's new boyfriend marries her, then runs off with my money? How can I encourage my son to finish college? What about my kid with a drug problem?
The answer, Olivieri tells them, is the incentive trust, which attaches incentives and conditions to money that you (the trustor) leave to your beneficiaries (typically, your kids). A trustee runs the trust for a fee.
Yes, you can put incentives in a will instead of a trust. But a will goes through probate court after you die, so your wishes are public. A trust is private. While a will directs a one-time distribution of your money, a trust can dole it out over time.
A typical trust covers "HEMS" (health, education, maintenance, support) expenses. The incentive trust adds "ifs." Your kids get $1,000 a month from the trust until age 30, for example, if they finish college, get jobs and stay out of trouble.
The vast majority of estate planning lawyers get requests for trusts that "motivate responsible behavior by the next generation," said Los Angeles lawyer Jon Gallo.
"Overall, the boomers have done an excellent job saving money, whether they've worked in factories or run big companies," said Nicole Denmon, a Tampa lawyer. "They've worked hard for their money. They don't want their kids to blow it."
While every generation thinks they work harder than their kids do, the lawyers said, the boomers' kids grew up with travel soccer instead of part-time jobs. The parents often question their kids' work ethic.
Although the incentive trust usually uses money as a carrot, Gallo suggested alternatives.
With money as your only incentive, "You could wind up rewarding the successful porn distributor while penalizing the elementary school teacher," he said.
A "principle trust," for example, uses values instead of dollars as benchmarks. A "financial skills trust" rewards the child who lives within his means and avoids debt, but does not have a high income. The latter "avoids meddling with beneficiaries' life choices about career, spouse, place of residence, religious faith, level of education, or level of earned income," according to Gallo.
The best incentive trust addresses as many what ifs as possible, the lawyers said. You do not want your child to get trust money until he earns a college degree, for example, but what if he gets a certificate in the trades?
If the trust gives him $100 for every $100 he makes, what if he joins the Peace Corps and earns just a stipend? What if a car accident makes him disabled?
What if he minimizes his salary to fund his startup business? If he becomes a stay-at-home parent, does "income" count his spouse's salary?
What if the child wants to borrow money from the trust to launch a business or buy a house?
"The most productive incentives are those that (address) kids with problems," Olivieri said. "You cannot get money until you enroll in a drug treatment program, for example."
Prenuptial requirements usually work, too, added Olivieri. Your child cannot get money from the trust after marrying unless he has a prenup that says his trust money stays in the family if he divorces.
Be careful to "not punish the good kid," said Denmon. "If this much money goes to the kid who needs rehab repeatedly, then the good kid should get money too."
An incentive trust backfires, said Olivieri, when you assume your child will react the same way as you would. "The trust gives him $100 for every $100 he earns because that would have made you work harder," he said. "But your kid might think, 'Great! Now I only have to work half as hard to get $200.' "
Choose a trustee who thinks like you, the lawyers said. Then, designate a backup in case something happens to him.
Think twice before choosing a family friend, said Walter Haines, a Los Angeles lawyer. "You may not want the kid on drugs to be banging on his door," he said. Consider naming your lawyer instead.
Your trustee can be a banker, but "most banks don't consider it worth it unless the trust has at least $1 million," Haines said.
The trust should give the trustee some discretion because he will be dealing with "moving targets," Haines added. "You don't know what your 5-year-old will be like when he's 25."
Give the trustee the leeway to make judgment calls. "The trust says 'no tattoos,' but if the child gets a tattoo on his butt, that may not be what you meant," Olivieri said.
You can give the trustee "total discretion," but that includes greater responsibility.
The trust cannot last forever, so it has a termination date. Typically, the remainder of the money goes to the kids after they reach a certain adult age, whether or not they have met the incentives by then.
"Make the age too young, and you put a target on the kid's back," Olivieri warned. "He's vulnerable to people who will want money from him. Think (Justin) Bieber."
Finally, tell your lawyer if you plan to tell your family about the incentive trust before you die.
"Ninety percent of my clients do," Denmon said. "But some don't because they don't want to hear the fighting."