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  • Writer's pictureRuthPGeorge

Carrot or the stick

Incentive trusts are an interesting estate planning technique but also must be set up appropriately.

Pat Bowlen, the owner of the NFL’s Denver Broncos, created an incentive trust back in 2014 when he could no longer actively run the Broncos due to Alzheimer’s.

Bowlen recently passed away and a major problem with his incentive trust is coming to light. The problem is a conflict of interest.

You see, the trust has the Trustees determining when an heir has met the incentives set out in the trust. When the incentives are met, the heir assumes a management role over Trust assets with a Trustee no longer acting in such a role. This means that a Trustee will essentially be out of a job when he or she agrees that an heir has met the incentives set out in the Trust.

This conflict makes it impossible to know if a Trustee's decisions are motivated by his or her own own self-interests. Such a conflict is unworkable. In such a scenario, a Trust Protector can be utilized to assume such a role.

This reminds me to always look at the big picture and run through real case scenarios when setting up trusts to get a feel for how the Trust will actually work. It is also a good reminder to have the appropriate fiduciaries or other parties acting in certain roles.

In this case, I have to say, good idea, but, wrong set up. And, as we all know, "hindsight is 20/20".

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