Are you thinking about attaching “strings” to a beneficiary’s inheritance? If so, consider putting a conditional bequest into your trust.
A conditional bequest requires your beneficiary to achieve certain goals or behave in a certain way in order to receive an inheritance. The purpose is to incentivize your beneficiary to follow a particular path you consider worthy. For example, you may provide a larger bequest to a grandchild who earns a college degree. Or your bequest could be tied to a behavior you believe protects the beneficiary from himself; an example would be requiring a child with a history of drug addiction to take periodic drug tests in order to receive his/her inheritance.
Conditional Bequests Must be Carefully Planned
Like every aspect of your estate plan, a conditional bequest must be carefully thought out and precisely worded. Ambiguous language can create loopholes that a creative beneficiary can exploit. A classic illustration is the late Tommy Manville, heir to the Johns-Manville asbestos fortune. The provision in the family trust said that Manville was “to receive $250,000 when he married.” However, the trust did not limit the bequest to just one marriage. So, marry he did – thirteen times in all! Between 1911 and 1960, Manville got married whenever he needed cash. He paid each new wife $50,000, got a quick divorce, and pocketed the balance.
Yet another thing to be wary of with a conditional bequest: the sometimes fine line between incorporating reasonable “carrots and sticks” into your trust, and ruling from the grave with an ironclad fist. Some conditional requests can be so overbearing or petty that they will make your beneficiary resentful, possibly even setting the stage for him/her to launch an estate challenge. Some conditions for a bequest may not even be legally enforceable, as we explain below.
Common Conditional Bequests
Here are some of the conditions people commonly impose on their trust beneficaries:
- Age: Your trust states that a fixed amount is released when your beneficiary attains a certain age. Often this is age 25. The rest is released when the beneficiary is older, commonly 35. The goal is to make sure the beneficiary has developed sufficient financial skills to manage the inheritance.
- Financial Irresponsibility: Of course, we all know that some people never learn to prudently manage money. If you want to leave an inheritance to someone like this, you may wish to establish a spendthrift trust. With a spendthrift trust, your trustee releases only a fixed amount to the beneficiary periodically, or whenever the beneficiary has demonstrated a need for money to cover certain expenses, such as health care or education.
- Education and Work: As an incentive to lead a productive life, some clients condition the release of some or all funds on a beneficiary’s completing a certain level of education, or on holding a steady job for a period of time. You could require the beneficiary to provide documentation to the trustee, such as school transcripts, bank statements or W-2s.
- Drug Addiction, Alcoholism: If you have a beneficiary with a history of drug addiction or alcoholism, you may allow your trustee to release funds only when the beneficiary shows he is drug-free and sober. The beneficiary may be required to pass periodic drug tests, or attend AA meetings.
The Flip Side Of Conditional Requests
Despite your good intentions, it’s important to remember that conditional bequests can have negative consequences. Here are some examples:
- May Not Be Legally Enforceable: A conditional bequest that goes against public policy, is immoral or unethical will not be enforceable. For example, you may not require your beneficiary to get a divorce as a condition for an inheritance. You may not require your beneficiary to sell property to someone of a certain race. Requiring someone to marry someone of a certain religion will generally be struck down by the courts, although there have been exceptions.
- Settling the Estate May Take Longer: Conditional bequests may prolong the estate administration process, making all your beneficiaries wait longer for their inheritances and costing the estate additional money.
- Additional Expense: If you are using a professional or corporate trustee, they will have to be paid to administer the estate and to monitor whether your beneficiaries are complying with the conditions you incorporated into your trust.
- Sibling Conflicts: The child whose bequest is conditional may resent siblings who get an outright inheritance. That resentment will likely increase if the sibling getting an outright inheritance is also the trustee who monitors his sibling’s behavior and control his funds. This is a plan not likely to promote harmony between your children, even if they have had a history of getting along well.
- Estate Challenges More Likely: Not every beneficiary tasked with meeting conditions to get his/her inheritance will take the situation in stride. The legal literature is replete with cases in which beneficiaries challenge a trust because they consider the conditions of their bequest unfair, illegal or against public policy.
If you are thinking about creating a trust with conditional bequests, talk it over with our lawyers. This is something that must be done only after serious consideration about the implications, both positive and negative. Call us for a consultation at (561) 625-1100.
