You have two primary options for leaving an inheritance to a child. The most straightforward is to give it to them in a single lump sum, with no strings attached. But this might not be the best option for some children. You may be concerned about the child’s ability to handle the money responsibly, fear they will spend it in pursuit of a cause you do not support, want to avoid the need for a court-ordered conservatorship to manage the funds if the children are minors, or have some other reason for wanting to set conditions on their inheritance.
Controlling Estates from the Grave: A Conditional Inheritance
Estate planning lets you control from beyond the grave who receives your money, when they receive it, and how they may use it. If you wish to restrict the flow of inherited money to your child, you can do so through your will or trust. While there are legal limits on conditional gifting, you are generally free to structure an inheritance the way you would like.
Ways to Use Conditional Inheritance Gifts
When raising children, most parents hope to shape their children’s behaviors, provide them with specific values, and help them become productive members of society. Parents often use a “carrot and stick” approach to get the desired outcomes, incentivizing approved actions with rewards and discouraging unapproved actions with punishments.
An estate plan allows parents to require or disincentivize specific actions before a child receives all or a portion of their inheritance. The court calls this a conditional gift. There are two main types of conditional gifts:
- A condition precedent gift given only upon a beneficiary meeting a stated requirement (i.e., the “carrot” approach).
- A condition subsequent gift refers to gifts given unconditionally. However, the court can revoke them if a specific event transpires (i.e., the “stick” approach).
Condition precedent gifts often tie to age. For instance, the estate distributes money to beneficiaries upon attaining certain ages (e.g., turning 21) or intervals of time (e.g., disbursements made one, three, and five years after the parent’s death). Usually, parents put such restrictions in place because of concern their child is not mature enough to manage a large sum of money immediately. Parents often choose conditions related to certain life events. For instance, the child earns their inheritance by graduating college, getting married, buying a home, or starting a business.
There are still other cases where a parent wants to protect a beneficiary from themselves or others. Children who have a history of drug and alcohol abuse might need a combination of the carrot and stick approaches that tie their inheritance to becoming—and staying—sober.
Not Every Conditional Inheritance Will Hold Up in Court
Although parents can be highly creative and detailed in structuring conditional gifts, their freedom to impose terms is limited.
In general, courts will not uphold conditions that are illegal, uncertain, unreasonable, impossible, or contrary to public policy. Here are some guidelines parents should consider when they create conditions for their children’s inheritances. A beneficiary should not be asked to engage in activity that breaks the law or is unconstitutional.
The conditional gift should be executed in clear and precise language. If there is doubt about what actions need to be taken—or refrained from—for the condition to be satisfied, the court could declare the condition void. There must be a chance that the beneficiary can satisfy the condition. In part, a court’s determination on this matter is based on the circumstances of the beneficiary and the context of the gift.
Conditions that violate public policy are not illegal per se. Instead, they are deemed to harm the public welfare because they are unfair or unreasonable. Historically, many courts have voided on public policy grounds conditions that restrain a person’s right to marry or incentivize divorce. The way courts interpret a conditional gift based on public policy is not always obvious and can be very fact-specific. It may come down to precedent from past cases and judicial discretion.
Some courts, for example, have refused to enforce conditions contingent upon a beneficiary getting divorced, but enforced marriage conditions based on age and marrying within the same religion.
About Skvarna Law Firm in Glendora and Upland, California
Skvarna Law Firm operates offices in Glendora and Upland, California. We provide legal services. We cover San Bernardino, Los Angeles, Orange, and Riverside Counties. This includes several cities. Upland, Ontario, Rancho Cucamonga, Fontana, Colton, Rialto, Chino, Chino Hills, Glendora, Claremont, Pomona, La Verne, Montclair, San Dimas, Azusa, Covina, West Covina, Diamond Bar, Walnut, La Puente, Corona, Norco & Mira Loma. Visit SkvarnaLaw.com to learn more.
