Can you control your heirs from beyond the grave?

August 18, 2012

The Wall Street Journal ran an interesting article this weekend examining the extent to which gift givers can exert control over their heirs once they are dead and gone. The article reveals several things that might surprise you given the scope of control that can be included in the language of Florida trusts and Florida wills.

The Journal explained that the issue is of special importance given the unusually favorable estate and gift tax rules that are set to soon expire. Currently, the exemption is $5.12 million per person, and twice that for a couple. The top tax rate applied to amounts beyond that number comes in at 35%. Not for long, the article warns, as the current exemption is scheduled to drop to $1 million and the top tax rate will jump to 55% come January 1, 2012. Given the state of affairs, expert recommend acting now, especially when it comes to giving gifts, as such moves made now can be grandfathered in if the law later becomes less favorable in the future.

There are limits to what a person can do when laying out their estate plan and one example includes provisions that are contrary to public policy. This includes requirements that promote divorce or demand criminal conduct and has been expanded to include racial discrimination. Provisions that discourage marriage have also historically be deemed unacceptable as well as any that are ambiguous, illegal or essentially impossible to implement. Religious restrictions are usually OK, like those leaving money to pay for a religious education, though they can, at times, be viewed with more suspicion.

While it may not be permissible to require marriage to a person with a specific religious background to keep inheritance, extra money if that occurs would seen not to violate public policy. One takes something away and one gives something extra. It is important to make sure your requests are properly worded as to not violate public policy.

When setting up a trust or messing with a will, there are some important things to consider. First, the devil is in the details. Make sure you clearly spell out who is to be included. For instance, consider carefully what you mean when you say "spouse" and come to a decision about whether that can include same-sex partners. Descendants can also be a tricky issue: adopted kids, stepchildren, children from a surrogate and even those conceived from frozen sperm. Though the examples sound wild, they certainly aren't unheard of. You have no way of knowing what shape your family will take in years to come and it's best to cover all your bases.

One tool for watching over future generations that the Journal discusses is what is known as an "incentive provision." Such provisions are meant to promote your descendant's productivity by doing things like matching their income (to encourage working and not laying around) or providing money to get a new business off the ground. Gift givers have to think about the goals they have for their family and if certain gift strategies would help achieve their ends. Giving money to stay-at-home moms may help strengthen a family, but it's important to realize how hard it is to think through every eventuality.

Another way of maintaining control once you're gone is to set up an "heirloom asset" trust. These are designed to protect important family assets, such as a house that has been in the family for generations. Experts recommend that the trust be given enough money so that heirs don't have to fight over who pays for maintaining the old homestead.

Not every kind of activity can be effectively governed from beyond the grave. Experts caution about inserting a requirement to test heirs for drugs, because it can be hard to find a trustee willing to undertake this intrusive supervision.

If you have other questions about estate planning or creating a will or a trust, please contact the Apple Law Firm PLLC to talk with a Florida Estate Planning Lawyer today at (904) 685-1200.

For more on the Journal's article see "How to Control Your Heirs From the Grave," by Laura Saunders, published at WSJ.com.