We all love our family, and for the most part, we trust family members to do the right thing. But sometimes we might feel that certainly family members need a nudge in the right direction.
It’s common to say that an estate plan is always designed to give the right things to the right people at the right time. But what is the “right” time? Certainly we don’t want to give money to a minor child . . . children can’t sign contracts, and funds that are in a child’s name will be vulnerable to creditors. In this case, we use a testamentary trust to create some conditions on when a child will get money. We might give the person in charge (the trustee) the ability to pay for college, for a down payment on a new home, or for a wedding. We will also tell the trustee to close the trust and give the child the rest of the money at a certain age; frequently that age is thirty or thirty-five (think of yourself as a twenty-five year old . . . would you have trusted yourself with $100,000, $50,000, or even $10,000?).
This usually covers our desire to make sure the right person gets the right thing at the right time; the right time in this case being when the beneficiary needs funding for certain life events, with a final payment at an age we think symbolizes that child’s entry into responsible adulthood. But what if we want to place other conditions on the money, such a condition that the child maintain a certain grade point average or remain drug-free? How about help with other hopes we may have for that child, such as that the child have children or get married?
No will or trust provision will be upheld if it violates public policy. If a will conditions a gift on certain highly personal decisions (such as getting married or refraining from getting married, or on having children), it can be successfully challenged in court. Not everyone believes in marriage of course, and not everyone wishes for (or is able to conceive) children. Once upon a time it was common to condition gifts to churches based on their parishioners being a certain race, or conditioning an inheritance on a young daughter marrying into a particular family. None of these conditions would upheld today, for obvious reasons.
But what about other conditions, such as maintaining a particular grade point average in school? As long as a condition is reasonable and not contrary to public policy, there likely isn’t any problem with the legality of the conditional gift. But there may be practical problems with the application.
Considering the case of requiring a beneficiary to maintain a certain college GPA in order to receive funds from a trust. First, not all college majors are created equally; engineering degrees often have classes with higher workloads and highly analytical classes. Someone who could maintain a 4.0 GPA in a different major may only be able to maintain a 2.5 in another. Does this mean that the creator of the trust wishes for a beneficiary to select a major based on the ease with which that beneficiary could get high grades? Consider the fact that certain scholarships may be pulled if a beneficiary falls below a certain GPA, even when the beneficiary is being a diligent student. Without money from the trust, this beneficiary may be unable to complete their education.
A frequent condition placed on a gift from a trust or will is that the beneficiary be free of drug or alcohol problems. This is an important and worthwhile goal; someone with substance abuse problems who has access to large sums of money could cause themselves a great deal of harm. But how do you enforce a condition of sobriety? You may need a trustee who is willing to work with a drug testing company. Which drugs should the company test for? What happens if the beneficiary is somehow able to fake the test? How often should the beneficiary be tested —- every time the beneficiary receives money? What if the beneficiary receives a monthly check? Is the trustee required to have the beneficiary tested every month? It could be challenging to find a trustee willing to have this level of involvement.
Placing conditions on a gift can be a very good idea, but there are some important considerations when attempting to put these plans into action. Always speak with a qualified attorney when working with estate planning documents. Your beneficiaries will thank you.