Incentive trust is a legally binding fiduciary relationship in which the trustee holds and manages the assets contributed to the trust by the grantor. This trust is designed to encourage or discourage certain behaviors by using distributions of trust income or principal as an incentive. In an incentive trust arrangement, the trustee must adhere to specific requirements set out by the grantor regarding what conditions the trust’s beneficiaries must meet in order to receive funds from the trust. An incentive trust operates as a sort of conditional inheritance for beneficiaries named in the trust.