When you make your estate plan, it’s natural that you might be curious about how your beneficiaries will handle the assets you leave. In some cases, thinking about this may raise valid concerns.
One option to address those concerns is to make that inheritance conditional. If they meet the conditions, they will receive it. If they fail to meet the conditions, they won’t. However, sometimes this might not work out as well as you thought. First, let’s look at examples of when people set conditions on inheritances.
To protect someone from themselves
One reason people make the receiving of assets conditional is if they fear the beneficiary will harm themself with that money. Typically, this applies when someone has addiction issues. You could stipulate that the beneficiary must beat the addiction if they wish to inherit.
To encourage them to work hard
Some parents and grandparents want to give a child extra encouragement. Perhaps they want them to follow in their footsteps and become a doctor or lawyer. Perhaps they just want them to go to college and work hard to better their prospects.
Potential consequences
Using an inheritance to direct loved ones after you’re gone could cause them to miss out on an opportunity that could have turned out better for them. For example, they could potentially turn down the chance to go in on a start-up that makes millions because they stuck with law school in order to receive the inheritance that is conditional on them doing so.
Maybe the beneficiary simply does not have the necessary ability to do what you are asking. Maybe the path you want them to pursue is not of interest to them. They may end up resenting you for imposing these conditions upon them. Another possible consequence is that they cannot access the money in an emergency, which you would want them to use it for.
While a conditional gift may be the right choice, learning more about the pros and cons of various estate planning options can help you make a more informed decision.