An incentive trust creates a conditional inheritance
Many times, an inheritance comes without conditions. If you put someone in your will and leave them $100,000, they simply get that money when you pass away. All that matters to the estate executor is finding the right person and distributing the funds.
However, you may want to set up a conditional inheritance so that you have more control over when and why the person gets their inheritance. To do so, instead of naming them in your will, you can just put the money into an incentive trust.
The conditions of the trust must be legal and logical, but you really have a lot of freedom to set it up however you want. The conditions you choose dictate what happens with your money.
For instance, one of the most common concerns people have is that leaving an inheritance will make it so an heir is not motivated. That person may drop out of college or quit their career, opting to live off of the money instead.
An incentive trust can be used to address this issue by saying that the person has to finish college before they can collect the money or by noting that they only get yearly payouts from the trust if they are employed. These incentives help to keep them from changing their life in what you would consider a negative fashion just because of the inheritance.
This is only one example of what you can do with a trust; there are many more options. Make sure you consider them all carefully as you are setting up your estate plan.