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May 2021: Estate Planning — How to Make Conditional Gifts 

When formulating an estate plan, it’s not unusual for individuals or couples to want to place conditions on heirs receiving inherited assets. For example, maybe you want to require that a child or grandchild reach a certain age before receiving assets. Or perhaps you want to stipulate that an heir meet certain conditions, such as being drug- or alcohol-free, or refrain from certain activities.

This is usually allowed, depending on the conditions stipulated. It is typically accomplished by using a trust to make conditional gifts to heirs. This ensures that there is someone (the trustee) who can decide whether or not the conditions have been met to allow the beneficiary to receive the gift.

A last will and testament could possibly be used to make conditional gifts. With a will, however, assets are usually transferred to heirs soon after the decedent’s passing, so the conditions can only apply to circumstances at the time of death. A trust enables you to set conditions that apply years in the future.

Conditional Gifts and the Courts

Courts usually strive to honor the wishes and intentions of the deceased when making rulings regarding conditional gifts. The main exceptions are when a condition requires a beneficiary to break the law, or when a condition goes against public policy. This includes conditions that encourage immoral or harmful acts that can harm society, such as requiring an heir to get a divorce in order to receive an inheritance, or depriving parents of control over their children.

However, courts have generally upheld conditions that place certain restrictions on marriage. These include conditions such as requiring that an heir not get married until reaching a certain age or that an heir not marry someone from a certain religion (or that an heir marry within a certain religion). Note: Conditions requiring that an heir marry or divorce a specific person generally are not upheld by courts, and neither are conditions that an heir change his or her religion.

There are two main forms of conditional gifts in trusts: condition precedent gifts and condition subsequent gifts. With a condition precedent gift, the condition must be met before the assets are released to the beneficiary. For example, requiring that a child or grandchild graduate college before receiving an inheritance would be a condition precedent.

With a condition subsequent gift, the gift would be revoked if a stipulated condition happens after the gift is released to the beneficiary. This would be the case, for example, if a child or grandchild married outside a stipulated religion after receiving an inheritance. Condition subsequent gifts can be difficult to enforce because the condition could occur many years after the beneficiary has received the gift.

Impossible and Uncertain Conditions

A court may also void conditions stipulated in a trust if it determines that the conditions are impossible to achieve, are designed to punish the beneficiary or that there is too much uncertainty in determining whether the condition has been achieved. Conditions may be considered uncertain if they’re too vague and require too much judgement on the part of the trustee to determine whether or not they’ve been met. 

For example, a condition that an heir marry a “good person” would probably be considered too vague and uncertain and voided by the court. The same goes for a condition that would be difficult to be enforced, such as a stipulation than an heir not watch certain kinds of TV programs or visit certain kinds of establishments like bars.

Beneficiaries can request that the court use its discretion to set aside a condition if they believe complying with it would be unreasonable. Courts might grant such requests if they believe a beneficiary can’t comply with a condition through no fault of his or her own, or if an interested party has prevented the heir from complying with the condition. 

Get Expert Help

It’s usually smart to consult with an experienced trust and estate planning attorney when making conditional gifts. He or she can offer expert guidance when it comes to setting conditions that are most likely to be upheld by the courts if they were ever challenged by your heirs.

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