"Where there's a will, there's a way," the saying goes, but according to estate lawyers and inheritance specialists with whom WalletPop spoke recently, a more accurate version of that adage might be, "Where there's a will, there's a relative holding onto the purse strings in the afterlife."
Inheritances and the trusts through which they're often distributed are rife with conditions the beneficiary must meet if they want to get those assets. For these unfortunate survivors, they're faced with the prospect of a parent or other loved one controlling their life from beyond the grave.
"I've seen required drug tests, or no distributions paid out until the beneficiary gets a Ph.D. It can go on and on," says Myra Salzer, right, founder of The Wealth Conservancy."If there's a family member who isn't toeing the family line or a family member who's drawing [negative] attention to themselves, they can be disinherited. That structure makes spineless pleasers of the whole family," Salzer says.
In the case of one client, says Salzer, the trust is managed by a person who can't be fired, although they have the power to cut off family members at will. Changing this uncomfortable situation would necessitate a "huge lawsuit," she says, which the family doesn't want to do. As a result, "You really have a whole family of ineffectual yes men who don't buck the system. Generation after generation, this just becomes the culture. It's really sad."
Other estate law experts with whom WalletPop spoke tell similar stories. "I have a lot of concerns about incentive trusts, where people put in sticks and carrots to try to entice their children and grandchildren to do things," says John A. Warnick, an estate lawyer. "I've worked with clients who've done that, and sometimes those provisions don't look so helpful in the rear-view mirror."
Warnick says he's had to try to talk some clients out of wording that would disinherit one of their children if they married someone of a different faith. "Trying to use a legal form to influence behaviors is not a very effective means of achieving that goal," he says.
A famous case that made it all the way to the Illinois Supreme Court dubbed this kind of religious-specific disinheriting the "Jewish Clause," and the Illinois Supreme Court deemed it legal. This kind of conditional inheritance is not uncommon. David Shulman, the estate lawyer whose blog is linked to above, acknowledges in his writing, "I have, on more than one occasion, per my clients' wishes, drafted a will or a trust which provides that descendants are disinherited if they marry outside of the Jewish religion."
Sometimes the sticking point can be education instead of religion. "Just recently I met with someone who has a young child," says estate planning attorney Danielle Mayoras. "It's very important to them that their son and future children would definitely go to college," says Mayoras, "so we made sure the children would have to complete a four-year college degree in order to receive any distributions from the trust down the road."
If this sounds draconian, Mayoras adds that she's had other clients who not only include a stipulation about earning a degree but require a minimum GPA - sometimes as high as 3.5 - before permitting the beneficiary to collect. Sometimes, she says, clients will also specify that the college has to be accredited or that it can't be a community school.
Mayoras is quick to say, though, that sometimes the rules parents or grandparents impose on their heirs are for their own benefit. "One client, a plumber, started with a couple trucks and built his fortune up to a multimillion-dollar business. He wanted to leave it to his grandchildren, but he didn't want them to be born with a silver spoon in their mouths," she says. He accomplished this by setting up a trust so that every April, each grandchild had to submit their tax return to the trustee. However much they'd earned the previous year, the trust would match, giving them an incentive to do well at their jobs and earn a good living.
"When you pass on a substantial fortune to grandchildren, sometimes they might not have that work ethic," Mayoras explains.
Both Salzer and Warnick agree that an incentive that empowers the would-be recipient is preferential to a heavy-handed decree. "When there's a carrot with a bunch of rules, the beneficiary learns to play the game and not live their life, and that's the problem," says Salzer. "Create a trust that enables the trustee to get a distribution as a result of an action on their part, so they feel like they earned it."
"A lot of these clauses that seem punitive may create a very strong backlash," agrees Warnick. Legal experts point out, though, that even well-meaning inheritances of this kind need to be very carefully worded to avoid unfairly penalizing some heirs.
Even the example of a trust that would match a person's earnings could be problematic, points out Lillian Dee Davenport, senior vice president and trust officer at Delta Trust & Bank. "What about the person who's staying home and rearing your grandchildren? What's that worth?" she points out.
"When you start walking into this ground, you're beginning to get into all kinds of psychological and emotional issues," adds Davenport, which forces lawyers and estate specialists to act as shrinks or therapists. "I don't think parents realize how much they project their lives onto their children."
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