Leona Helmsley infamously left $12 million in trust to her dog while completely cutting out two of her four grandchildren from her fortune. The two grandchildren who received bequests could only receive their payouts if they visited their father’s grave at least once a year, which they had to prove by signing a register kept at the Helmsley Mausoleum. This was Leona’s way of “encouraging” her grandchildren to do something that they might not want to do otherwise – by tying it to their inheritance.

“Incentive trusts” have received a great deal of attention in recent years as a creative way to encourage desirable behavior from trust beneficiaries by tying distributions to the requirement that beneficiaries attain certain goals. Because the binding provisions of incentive trusts can have unintended consequences, clients are generally advised to use non-binding (precatory) trusts to achieve their objectives.

The main disadvantage of incentive trusts is that they often include potentially unclear, binding goals or benchmarks, which can lead to disputes and even to costly litigation. For example, parties may disagree as to whether or not “graduation from college” includes graduation from a 2-year community college. Another disadvantage of incentive trusts is that they may result in unintended consequences. For example, a trust that requires matching salary distributions may discourage a beneficiary from pursuing a career that is personally or socially rewarding – such as that of artist or social worker – but may provide lower salaries, as it would result in lower matching salary distributions from the incentive trust.

In contrast, precatory trusts provide non-binding guidance to the Trustee that does not mandate a course of action. These precatory trusts can be customized to convey a client’s specific goals for future generations and adjusted to the changing needs of beneficiaries. For example, a precatory trust may be drafted so that distributions focus generally on living and educational expenses until the beneficiary reaches age 25; and on the beneficiary’s efforts to acquire a home or establish a business when the beneficiary is between the ages of 25 and 35.

In addition, precatory trusts have other potential benefits, such as increased creditor protection. Precatory trusts inherently have less potential for conflicts than do incentive trusts, since generalized distribution guidance provides more flexibility for the Trustee to tailor trust distributions to a beneficiary’s unique circumstances, rather than requiring that mandatory goals be met.