The Invisible Hand: Incentives and Restrictions on an Inheritance

The old saying goes “you can’t legislate morality.”  While that may be true, you can always try.  Federal and state governments use the law to influence behavior every day.  For Georgia individuals who want to provide some additional incentives or restrictions to their family’s inheritance, Georgia law on “Incentive Trusts” may allow them to use some creativity.


The Good

Georgia law is fairly flexible in allowing people creating a Georgia Will or Georgia Trust to make trust disbursements (or even beneficiary status) contingent or conditional upon an outside event.  Georgia law says a trust may be created “for any lawful purpose” not contrary to public policy.  So, it may be tough to say your children cannot get a divorce or marry someone from another religion.  Such restrictions in a Georgia Will or Georgia Trust are contrary to public policy as society tends to benefit from allowing people to divorce or marry someone from a different religion.

Other incentives crafted to impact an individual beneficiary with less of an overall impact on society can often be enforced, however, in a Georgia Will or Georgia Trust.  Some examples are provisions aimed at making people stop smoking, drinking, gambling, or other vices.  Continuation of business concerns is another major contingency, with small business owners making a trust contingent upon keeping the business up and running.  So long as your condition or contingency is not so outrageous as to be void for public policy reasons, Georgia should respect your right to try to influence the behavior of others through your Georgia Will or Georgia Trust.


The Bad (and the Ugly)

Caselaw in Georgia is sparse concerning the use of Incentive Trusts in Georgia.  There are, however, a few cases on conditional and contingent Georgia Wills.  For Georgia Wills in particular, language must be carefully crafted for it to be enforceable.   In general, Incentive Trusts are more susceptible to challenge, trust contests or fiduciary litigation because a beneficiary is more likely to take issue with the manner in which his or her inheritance was incentivized.

It also places a large burden on the trustee.  The Trustee of a Georgia Incentive Trust is burdened with making the determination of when a condition has been met.  For example, what are the requirements for determining whether a beneficiary has “quit smoking”?  Six Months?  Three Weeks?  Fights over these types of determinations are further opportunities for trust disputes or fiduciary litigation.

Finally, what happens if the condition is never met?  Does the Georgia Incentive Trust designate an alternative taker?  These issues are just a small sampling of the problems you can have without a clearly thought out and fully fleshed out Incentive Trust.

Do you have questions about what you read?  If so, contact us here. 


Thank you for reading this article. The information contained in this article is for discussion purposes only. The information contained in this article is not legal advice upon which you should act and simply reading this article does not make you a client of Norris Legal, L.L.C. or any other law firm. Thank you.