Protecting Your Children’s Inheritance Or Ruling From the Grave?
Many people like to encourage their children, grandchildren and other beneficiaries to be motivated to “succeed in life”. “Success in life” is a phrase that has different meaning to different people. Many testators (will makers) and grantors (trust creators) avail of conditional gifts as a mechanism to incentivize and motivate, for either their beneficiaries’ benefit or for the purposes of carrying on their own values or ideals. Regardless of the express motive for including conditional gifts, there are certain factors to take into consideration when including conditional gifts in one’s will or trust.
A conditional gift is a gift of property, tangible or intangible, which will either not be devised/bequeathed or will be revocable if the recipient fails to fulfill conditions attached to the bequest. There are two types of conditional gifts: condition precedent and condition subsequent.
A condition precedent is an event that must occur before the gift goes to the beneficiary. For example: $15,000.00 to my grandson, Tom, if he has obtained an undergraduate degree by 2018.
A condition subsequent is an event that could occur after the gift is made, resulting in the invalidation of the gift. For example: I give my vacation home to my daughter Mary, as long as she continues to produce and sell artwork.
As explained below, conditions subsequent tend to be more problematic than conditions precedent.
Many testators and indeed grantors find that conditional gifts can be a great mechanism to ensure that their beneficiary, troubled or otherwise, will achieve something or refrain from doing something in order to receive their inheritance. Conditional gifts can be mostly anything, including the following: refraining from alcohol and drugs, obtaining a college education, pursuing a certain profession, marry into a certain religion etc. For gifts with conditions precedent, if the condition is fulfilled, the personal representative, or trustee simply asks to see the associated records, such as school records, medical records, marriage license or other evidence showing the fulfillment of the conditions and will then distribute the property.
While conditional gifts have benefits and provide the testator or grantor with great peace of mind for the future of their loved ones, in order for the conditional gifts to be successfully enforced, they must be somewhat specific. This becomes an issue for gifts subject to conditions subsequent. For example: I give my acre of land to my son Billy, on the condition that alcohol is never sold on the land. While the latter conditional gift is valid, enforcing it may be difficult. In this example the condition resulting in revocation of the property might not happen until decades after the gift is made, i.e. Billy might live on the land for 35 years and in the 36th year open up a liquor store. This is a violation of the will/trust provision, however there is a high chance that nobody would be around to enforce the provision. In order to be sure that a conditional gift will be honored, the condition must generally be clear and time specific with little risk of being left open for an indefinite period of time. A well-drafted will or trust should include an alternate beneficiary to take the property if the original beneficiary violates the condition subsequent. If the alternate beneficiary is alive, they will be in a position to challenge the violation of the condition subsequent.
While mostly any type of condition placed on a devise/bequest is legally valid, there are certain conditions that the courts have ruled will not be honored as a conditional gift to the beneficiary. The courts have ruled that asking someone to marry or refrain from marrying a particular person as non-enforceable. The courts have also found that a conditional gift calling for one to divorce their spouse is not enforceable. However, the courts have upheld that a condition requiring a person to marry someone in a certain religion as enforceable.
If you are thinking about leaving conditional gifts to beneficiaries in a way to motivate them or to instill your values upon them, be sure to be as specific as you can for the inheritance requirements.
At 16 you can drive a car. At 18 you can vote and serve in the military. And at 21 you can order a drink in a bar. But, when is the right time to create an estate plan? When should you create the basic documents that will help you and your family make important decisions in the face of an unexpected life event?
While there isn’t a clear-cut answer provided by the state, federal HIPAA privacy regulations, which protect individuals’ private health information, says an “adult” is anyone 18 or older — meaning at 18 not even your parents can access your health information or make medical decisions for you in the event of an accident or illness unless you allow them to.
But there are many reasons to create a basic estate plan early on. Created in conjunction with an attorney, tax advisor and possibly a financial planner, a solid plan dictates things such as which assets should be given to whom. Assets can include everything from bank accounts to real estate to your favorite watch. (Without a plan in place, state law will dictate how your assets are passed along, which typically means the inefficient process of being passed to family members following strict ordering rules and only after numerous filings with the local probate court.) A well-rounded estate plan also includes, as alluded to above, more than just assets or “wealth.” It also takes care of financial and medical decisions, such as giving named individuals access to your financial and medical records or the ability to make medical decisions on your behalf, should they need to.
Below is a checklist of essential components for a basic estate plan, one that all adults, young or old, should have in place: