Incentive trusts can perpetuate your wishes -- or fuel a family squabble. By Jane Bennett Clark, Senior Editor June 30, 2008 Editor's note: This article was updated on 7/08. You've worked hard, saved diligently and amassed enough money to leave the kids a tidy sum. Should you attach strings that limit how or when they use it? Thirty percent of wealthy Americans do just that, a survey by PNC Wealth Management shows. They use their wills or trusts to reward certain types of behavior and discourage others by delaying or cutting off the supply of cash. Drawn up right, so-called incentive trusts perpetuate your values and help your heirs cultivate "responsibility, enthusiasm and service," says Martyn Babitz, of the Hawthorn division of PNC. But drawn up incorrectly, they can create as much conflict as you'll find in a Dickens novel. Be realistic. To ensure that your dollars stoke a good cause rather than inflame a family drama, avoid making the terms of your will or trust so complicated that they can't be enforced -- or so restrictive that your heirs curse your name while cashing your checks. "You don't want to work your whole life to have your kids think you're an idiot," says Elizabeth Arnold, author of Creating the Good Will (Portfolio, $14 paperback). Advertisement Telling your children whom to marry or what faith they should practice makes for both bad feelings and bad policy. What's more, such stipulations generally won't hold up in court. "You can't use an incentive trust to make up for years of ineffective parenting," says Martin Shenkman, a lawyer in Paramus, N.J., who specializes in estate planning. Let time do its job. Unless you specify otherwise, your kids could come into their inheritance when they turn 18. Rather than finance youthful misadventures, stagger the payouts at, say, ages 25, 30 and 35. This provision, common in estate plans, not only gives the kids a chance to mature but also lets them recover from mistakes. If some of your children are still dependents, set up a single, pooled trust from which the trustee can draw to pay their living and educational costs. Once the youngest reaches the qualifying age, the trust can be divided and disbursed. Set benchmarks. In the case of a beneficiary with a substance-abuse problem or a spending habit, instruct the trustee to restrict or approve payouts based on an objective mechanism -- say, periodic drug tests -- until the black sheep shapes up. Don't ask a family member to take on this responsibility. Instead, appoint a bank, a lawyer or another third-party fiduciary to do or share the job. Corporate fiduciaries generally charge an annual fee of 1% to 1.5% of the trust assets. Be flexible. You may want to reward your heirs' efforts by giving them a dollar for every dollar they earn or a bonus for every semester of school they complete. Such provisions, however, penalize beneficiaries who become incapacitated or choose a path that doesn't include a big paycheck. Keep the terms flexible. John and Jeanette Mason of Fairfax, Va., set aside money for their grandchildren to use for higher education. If the kids don't go to college, however, they can still collect the inheritance when they turn 25. Advertisement Hand out a life preserver. No matter what your intentions, the trust should cover at least your heirs' basic needs and include a clause that would free up funds in a legitimate emergency. For instance, "you should have health provisions that say, 'If this beneficiary is hospitalized for any reason, he or she will have unlimited access to the trust for all medical bills,' " says Steven Merkel, of FAC Wealth Management, in Naples, Fla. Or let the trustee decide when to write an extra check. Explain your thinking. A will, or an accompanying letter, gives you one last chance to provide insights into your decisions, especially if you're not treating everyone equally. State your intentions for each person who expects to inherit from you, whether they do or not, and keep the message positive, says Arnold. "Make sure your heirs have a tangible keepsake or an expression of your love."