When people with considerable assets place money in a trust for a child or grandchild who’s an adult (at least in the eyes of the law), they often place some conditions on the distribution of those assets. Most people do that in part to protect the beneficiary from their own lack of care with money or even from addictions that could wipe out their trust and kill them if no safeguards are in place. However, these conditions also help preserve family wealth to ensure it’s spent thoughtfully and for the greater good.
These trusts are sometimes called conditional, incentive or spendthrift trusts – in part based on the purpose of the trust. The person who sets up and funds the trust appoints a trustee who will follow the directions laid out for disbursing funds. The trustee must also manage and invest the assets in the trust for the greatest growth or to ensure long-term income.
Enforceable vs. unenforceable conditions
It’s crucial to understand what conditions can legally be placed on obtaining the money left in trust – and which ones will likely be deemed unenforceable if a beneficiary takes the matter to court. For example, common conditions and incentives often involve things like completing college, getting a job or getting and staying sober.
Some people get carried away with their conditions and try to control aspects of their family members’ personal lives even after they’re gone. This practice is sometimes called “dead-hand control.”
Unenforceable conditions include the following:
- Any involving the requirement of a beneficiary to marry or divorce or not to marry or divorce
- Any restrictions on whom a beneficiary can and can’t marry, such as someone of the same sex or someone of a different race or religion
- Anything requiring a beneficiary to practice a particular religion or forbidding them from converting to another faith
- Anything that requires them to commit a crime, such as instructions to hide or destroy evidence or to lie to authorities
The best way to set up a trust that will serve the purpose you intend it to and hold up in court should it ever be challenged is to have experienced legal guidance. By fully understanding the law, you’ll also be better able to explain your decisions to your loved ones.