What Conditions Can You Put on Your Child's Inheritance?
What Conditions Can You Place on Your Child’s Inheritance?
When planning your estate, you have the flexibility to decide how and when your child will receive their inheritance. The simplest option is to leave it to them in a single lump sum without any conditions. However, this approach may not be suitable for every situation. You might worry about your child's ability to manage the money responsibly, or you may want to ensure that the inheritance isn't spent on something you don't support. Additionally, if your children are minors, you might want to avoid a court-ordered conservatorship to manage the funds. These are just a few reasons why you might consider placing conditions on their inheritance.
Estate planning allows you to control, even after your passing, who receives your assets, when they receive them, and how they can use them. If you wish to place restrictions on your child’s inheritance, you can do so through your will or trust. While there are legal boundaries on conditional gifting, you generally have significant freedom to structure your child's inheritance in a way that aligns with your wishes.
If you have questions about the enforceability of a conditional gift, it’s crucial to consult with an estate planning attorney.
Types of Conditional Gifts
When raising children, parents often use incentives to encourage desired behaviors and discourage undesirable ones. Similarly, an estate plan allows parents to set conditions that their children must meet to receive all or part of their inheritance. These conditions are known as conditional gifts, which come in two primary forms:
Condition Precedent Gifts: These are only given if the beneficiary meets a specified requirement (the “carrot” approach).
Condition Subsequent Gifts: These are given unconditionally at first but can be revoked if a certain event occurs (the “stick” approach).
Condition precedent gifts are often tied to age, such as distributing money when a child turns 25 or at intervals after the parent’s death. This is typically done because the parent believes the child isn’t mature enough to manage a large sum immediately. Other conditions might relate to significant life events like graduating from college, getting married, buying a home, or starting a business.
In some cases, parents might want to protect a child from their own tendencies or from external influences. For example, if a child has struggled with substance abuse, the inheritance might be tied to maintaining sobriety, using a combination of both the carrot and stick approaches. See our blog post on planning for a loved one with addiction for a more thorough look at this difficult subject.
The conditions you can place on a gift are as varied as the reasons for imposing them. Whether you aim to instill a sense of purpose in your child, discourage certain behaviors, or align their actions with your values, numerous options are available. Consider some less common conditions:
Offering additional distributions for achieving a perfect GPA or performing volunteer work
Matching distributions with amounts given to charity or earned at a job
Restricting distributions if the child is not employed
Providing seed money to start a business
Conditioning a gift on passing a random drug test
Incentivizing work in the family business
Ensuring that a child caregiver does not place a surviving spouse in a nursing home
Legal Limits on Conditional Gifts
While you can be creative in structuring conditional gifts, there are legal limits. Generally, courts will not enforce conditions that are illegal, unclear, unreasonable, impossible to fulfill, or contrary to public policy. Here are some guidelines to keep in mind:
A beneficiary should not be required to engage in illegal or unconstitutional activities.
The condition should be clearly and precisely stated. If there is ambiguity about what needs to be done—or avoided—to meet the condition, the court may void it.
The beneficiary must have a reasonable chance of fulfilling the condition, considering their circumstances and the context of the gift.
Conditions that violate public policy, while not illegal per se, are seen as harmful to public welfare because they are deemed unfair or unreasonable. Historically, courts have often voided conditions that restrict a person’s right to marry or incentivize divorce.
The interpretation of conditional gifts can vary, as public policy considerations are not always straightforward and can depend on specific facts. For example, some courts have refused to enforce conditions requiring a beneficiary to get divorced, while others have upheld conditions related to marrying within the same religion or marrying at a certain age. Additionally, public policy can vary by state, meaning that a condition deemed invalid in one state might be upheld in another.
Consult an Estate Planning Attorney
Parents and children may have differing views on conditional gifts, both during life and after death. Whether you’re a parent setting conditions or a child subject to them, consulting with an estate planning attorney is wise.
For parents, as long as the conditions you impose are in your child’s best interest, clearly stated, and not against public policy or the law, they should be upheld by the court. However, unclear or vague conditions can lead to lengthy and costly court proceedings, potentially undermining your intent.
For beneficiaries, understanding whether a condition is legally valid, if it has been met, or if the trustee is handling the trust appropriately can be challenging. If a condition seems unreasonable, you may need to raise a legal objection to secure your inheritance.
These issues are often sensitive and legally complex, involving family dynamics, state laws, and court precedents. Whether you're setting up or challenging a conditional gift, our estate planning attorneys can help you navigate your rights, obligations, and options.