Conditional trusts — or trusts that require the beneficiary to meet certain obligations spelled out within the trust’s documents — are often criticized. They essentially allow the deceased settlor of the trust to exert “dead-hand control” over their heirs’ futures.
That’s not always a bad thing; however, you must understand your goals, allow the trustee some discretion and anticipate potential problems. You also have to make sure that you don’t accidentally invalidate the trust by trying to impose certain unenforceable conditions.
What kinds of conditions in a trust may be declared unenforceable?
Often, conditional trusts aim to be practical. They may, for example, restrict how much cash a beneficiary can access each year until they reach certain “milestone” ages, like their 25th or 30th birthdays. The goal, naturally, is to prevent them from accessing too much money at once and squandering it.
It’s only when a trust’s conditions are a violation of public policy that they go too far — and may end up declared invalid. The following are examples of conditions that have been successfully challenged in court:
- Prohibitions that prevent a beneficiary from marrying or marrying someone of a specific race
- Provisions that stipulate that a beneficiary must get divorced or those that otherwise “promote family strife”
- Restrictions on a beneficiaries’ religious practices and beliefs, such as requiring them to convert to a specific religion or other conditions that violate their right to religious freedom
- Requirements that the beneficiary must destroy certain items of property (including things that they inherited at the time of the deceased’s death)
- Any condition that would require the beneficiary to engage in illegal activity
If you’re thinking about using a trust to ensure your family’s financial stability after you’re gone, it pays to have a carefully considered — and legally enforceable — plan.