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What conditions can – and can’t – you place on a trust?

On Behalf of | Sep 18, 2022 | Estate Planning

As part of their estate planning, many people choose to establish trusts for their children, grandchildren or others to give them a financial “leg-up” as they enter adulthood. Often, these trusts are set up with conditions.

These can be as simple as stating that the beneficiary must reach a specific age before they can access the money – beyond simply being a legal adult. If it’s a considerable amount, you may state that they can only receive a certain amount or percentage every year or on whatever timeline you choose.

Conditional trusts are often called incentive trusts

Many are designed to encourage people to get an education or learn a skill or craft and lead a productive life – not to live off inherited wealth that a family member has worked hard to accumulate.

Some people, unfortunately, get carried away with conditions and try to tie the disbursement of funds to things that they have no right to control – at least via a legal document like a trust. This is sometimes referred to as “dead hand control.”

Often, dead hand control conditions involve the grantor’s values and beliefs. They want their heirs to live the life they want for them – even if it’s not who they are. If these conditions make it into a trust (generally because the grantor didn’t have legal guidance when establishing it), they will likely be deemed unenforceable.

Some examples include conditions that:

  • Require the beneficiary to get married or divorced – or that forbid someone from marrying a person of the same sex or a different race or religion
  • Involve adherence to a particular religion – such as requiring a beneficiary to convert to a specific faith or renounce their current faith (or lack thereof) or raise their children in a certain faith
  • Require illegal activity – for example, destroying evidence that would incriminate the grantors or others or keeping or hiding stolen assets

Attempts at dead hand control typically backfire badly. In addition to being deemed invalid by a court, they can forever damage someone’s memory of a beloved parent, grandparent or other loved one.

As noted, by having legal guidance as you develop your estate plan, you can avoid including unenforceable conditions while still setting perfectly legitimate conditions on when and how your assets are distributed.

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