Question: My wife and I are retired and have four grown children. One is a teacher, one is a fireman, one is an electrician, and the fourth has not lived up to his potential and struggles to make ends meet. One of them has a drinking problem, and another has been married four times. We have seven grandchildren. While we would treat each child equally (financially speaking) if all things were equal, we have decided that it would not be equitable to do so. In addition, we’d like to try to motivate our children to do their best.

We are not wealthy, but we are comfortable. We have run into a brick wall trying to structure such a plan. Is there a way to get the most out of our children whom we feel are under-performing?

Answer: Several years ago, “Incentive Trusts” were touted as the way to use monetary rewards to motivate certain actions and behaviors by beneficiaries. Created either during life or by will, you and your wife can either reward or penalize certain behavior.

Since the vast majority of Americans will not have taxable estates, it is prudent, we believe, to make sure the surviving spouse has access to income and distributions until the second death. The children can be taken care of at that time.

Gambling and alcohol/substance abuse are common reasons to use disincentive language that would suspend a beneficiary’s distributions if the money would feed the habit. The trustee could be given the authority to use trust funds for rehabilitation and treatment, but this type language puts the trustee in the position of being a “watchdog”. Moreover, such an arrangement may be both impractical and expensive.

If you wish to encourage children or grandchildren to attain higher educational achievement, you can authorize greater distributions if certain grade point averages are maintained. Or, you can provide that payments be made for attending and completing graduate programs.

Some folks may want to reward a child for joining the family business, but here it appears that you might want to consider giving extra incentives to those of your children who have chosen careers that are not as monetarily rewarding. For example, since your fireman, teacher, and electrician could probably use salary and retirement supplements; you could direct your trustee to supplement both areas -- assuming you have the funds available.

There are also potential incentives to encourage marriage, staying married for set lengths of time, buying a home, and even supplementing family income to compensate for lost income if one spouse stays home to raise the children (your grandchildren).

As you see, the alternatives are as limitless as your imagination; however, structuring these types of trusts can also cause unintended problems. For example, your desire to produce work ethic and production will probably come to a screeching halt when your beneficiaries eventually become incapable of further performance or retire. And suspending benefits for a student, who, as much as he or she tries, can’t maintain the grade point average you have set, could be devastating emotionally and economically. On the other side of the equation, you certainly don’t want to create a perpetual student.

Taking the NextStep: While your motive is pure, the practical effect of your plan may well be the micromanagement of your children’s lives – and that may be difficult to pull off. We believe that it will be difficult to find a trustee willing to take on what could be a full-time job. And if you find one, it will be expensive. Since choosing one of your children, as trustee would be catastrophic, you will be searching for a corporate fiduciary. While we don’t think using incentives is all bad, we are afraid that you and your wife will be spending your time agonizing over how your children should run their lives, which may be counterproductive to the two of you, not to mention your children. Pushing too hard and too much can be as bad as doing nothing. Moderation may be the best strategy.