The possibilities to tailor an estate plan to one’s exact specifications is virtually endless. That is perhaps most evident in the various ways that heir’s can be required to meet certain guidelines as part of a gift or inheritance. The Wall Street Journal dove into this idea last week with an article on “controlling heirs from the grave.” While that phrasing likely conjures images of busybody relatives, the basic concept of securing one’s wishes after death is entirely prudent
The story explains that many consider adding “strings” when passing on assets to others. The conditions can be placed both on inheritances and gifts given while still alive. Our New York City estate planning lawyers appreciate that many community members are strategically making sizable gifts this year in order to take advantage of favorable exemption levels and tax rates that are set to expire at the end of December.
One common concern about large gifts is the requirements that one give up control of the asset entirely–they are usually given as part of an irrevocable trust. Yet, it is important to realize that some strings can still be attached to those gifts. In general, gifts can be given with any requirement attached, even when the requirement seems silly–like demanding that family members spell their name a certain way. One of the most common provisions are “spendthrift clauses” which strive to protect a gift given to one who is known to have poor financial acumen.
In most cases the only limit are requirements that are deemed “contrary to public policy.” There is no hard and fast rule to determine when a court will strike down a provision on those grounds. However, past cases over a good indicator of what sort of strings attached to a gift would not be allowed. For example, in the past various will provisions have been axed which encouraged divorce, committing crimes, or involving racial discrimination.
An estate planning lawyer can explain if your unique requests are likely to be upheld. The attorneys will also be able to explain how various gift or inheritance requirements might spawn unintended consequences. No one likely wants to leave a “legacy of ill will.” In addition, the professional can ensure that the gift is arranged such that the desired tax benefits accrue. The gift will generally not be open to the tax exemption if the one who sets up the trust retains control directly or via an agent.
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