When we do estate planning for clients here in California there are often concerns about their children losing the desire (or never gaining the desire) to work. That is, many of us have heard stories of adult children inherting money and either blowing it all real quick or, if it’s a lot of money, never working a real job. To a lot of this, who work very hard, this doesn’t sound so good. There are many options. Some people just leave the money to charity. That’s an option that works for some but not others. However, what about leaving the assets in trust and letting your kids, grandchildren or other loved ones EARN IT!?
It sounds like the old Smith Barney commercials right? They “EARNNNNN IT.” Why not!? Why should you kids inherit a ton of money, watch tv, hang out at the country club, etc… and never learn the ups and downs of HARD WORK!? Earn out clauses are an option that we can incorporate into your wills or trusts to help give your child the incentive to work hard after you have died.
Earn out clauses can start with a bonus for obtaining a 4 year college degree or other educational milestone as you deem worthy. That is, we can incorporate language like, “if my child obtains his four year college degree he will receive a check for $100,000.” I don’t know about you but I know for me I would have graduated early if that carrot was waiting out there on the end of the stick!
You can continue earn out clauses when your child enters the real world. Maybe they can receive one dollar out of your trust for every dollar they earn at a job. I did one recently that was two dollars for every dollar earned. Plus, you can customize it to give bonuses for certain professions. That is, maybe your child becomes a teacher or a social worker and they receive three or four dollars per dollar earned since those professions might be lower paying than other professions. Certainly we don’t want your kids to solely be driven by the mighty dollar. Also we can incorporate flexibility if your child is truly unable to work, becomes sick, etc….
In conclusion, earn out clauses are a great thing to keep in mind for your estate plan.
Contact me with any questions about this or anything else directly or via our website atwww.californiaprobate.info