North Sydney Commercial Lawyers

Incentive TrustsPrint This Post

Incentive Trusts your client controls a trust which runs a very successful business and he wants to retire in the next 5 years. However, he complains that his son, who wants to take over, lacks business acumen, interest and general motivation. He is afraid that despite the son’s apparent interest in taking over, the business will ultimately fail.

What can he do?

Incentive trusts are very popular in the USA but they are in their infancy here. They are designed to encourage appropriate behaviour in financially irresponsible beneficiaries.

For example, the father could insert a provision that the son complete a university degree before a capital or income distribution be made, or before shares are issued, or before the son’s directorship is granted.

Or alternatively, the trust could have a provision that it pay the son $1 for every dollar that the business exceeds its KPIs.

We recommend several such trusts but they need careful drafting to ensure that they are not void on public policy grounds or on grounds that they fetter the trustee’s discretion.

Call our Wills & Estate Planning Lawyers for details 02 9964 0022