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Conditioning Trust Benefits on a Recipient’s Behavior

Many of our Florida clients are reluctant to leave large lump-sum inheritances to their children when those children have not demonstrated maturity or responsibility with money. This is especially true if a child has a history of alcoholism or drug abuse. In such cases, a bequest in a will can actually be destructive. If you have similar concerns, you should consider creating a trust to hold assets for that beneficiary.

A trust is an entity you create to hold assets for a stated purpose. You also name a trustee who is charged with managing trust funds and dispensing them according to the terms of the trust. An incentive trust seeks to reward good behavior and punish poor behavior. You might decide that your son must graduate from college by a certain age or lose trust benefits. Or you may stipulate that he must remain “clean and sober” to continue to receive benefits. Or, if you’re a Hollywood screenwriter, you might insist he get married by midnight before his thirtieth birthday. But are those conditions enforceable?

The general rule is that conditions on a benefit must be specific and may not violate the law or public policy. You want to stay away from any conditions that give too much discretion to the trustee, because that is liable to result in litigation between the beneficiary and the trust, which can deplete trust assets.

A demand that your son “graduate from an accredited four-year college” is enforceable, since encouraging a child to get a college education is not illegal and certainly consistent with public policy. On the other hand, even though sobriety is preferable to addiction, the term “clean and sober” might be too vague to be enforceable and might give the trustee too much discretion to cut off funds. However, you might require a blood test to screen for drugs, so any decision by the trustee would rest on firm evidence. A demand that your son get married by 30 might be enforceable, but you should consider that the temptation to enter a sham marriage might defeat the purpose of the condition.

That brings up an additional point to consider. Your heirs might view the conditions placed on the trust as your attempt to control their lives from the grave, creating bitterness when you’d prefer to be fondly remembered. If you think an incentive trust might be appropriate for your circumstances, talk to a knowledgeable estate planning attorney at the Charles Law Offices who can tell you more about trusts tailored to your specific goals.

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