Can conditional gifts be part of my estate plan?
Ideally, you would be able to trust that your children will be grateful for the shares of your assets that they receive when you pass away. They would use the funds and assets you leave them wisely to honor the hard work you put into earning them. In other words, they would not squander their inheritance on dubious investments or purchases beyond their means.
When you are gone, you cannot directly influence how your heirs spend the money you left them. But you can use your estate plan to set up conditions that they must meet to receive — or hang onto — their inheritance. These are called conditional gifts.
What a conditional gift can do
In estate planning, there are two types of conditional gifts: conditions precedent and conditions subsequent. The difference is the order in which things must proceed.
A condition precedent works by requiring an event to occur before the heir receives their gift. For example, you can make a gift to your child or grandchild for $100,000 on the condition that they graduate college by the time they turn 25. If the heir finishes college within the time limit, they receive the money.
A condition subsequent works the opposite way. The heir receives their gift, but if an event occurs that the testator does not like, they lose the inheritance. Say you leave the family home to one of your children, on the condition that they do not tear down the house. If the child ever violates the condition, a provision in the will would direct what would happen to the property, generally by giving it to an alternate beneficiary or heir. Conditions subsequent can be difficult to use because it could be decades after your death that the violation occurs. The alternate beneficiary or another party who could enforce the condition may no longer be alive.
What conditional gifts cannot do
You can’t use a condition in your estate plan to force an heir or beneficiary to do something. They must have the choice to perform according to the condition and receive (or keep) the gift or not.
Including conditions in your estate plan can help you maintain some control over your assets after you are gone, but they can require careful work and planning to use successfully. Speak with your estate planning attorney about whether to use these or other options.