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Stephen Beroes, Elizabeth A. Beroes, Julie Elizabeth Beroes, and Shanice Williams
Stephen Beroes, Elizabeth A. Beroes, Julie Elizabeth Beroes, Shanice Williams

Should I place a contingency on trust distributions?

On Behalf of | Nov 18, 2022 | Estate And Trust Administration

We often include an inheritance in a trust that we hope our loved ones will spend wisely. If your heirs are still minors, are spendthrifts or are suffering from addiction it can be tempting to put contingencies in your trust that dictate upon what events trust distributions can be made. But is a contingent trust always the best way to ensure an inheritance is handled responsibly?

What is a contingent trust?

A contingent trust is one that becomes effective, meaning an inheritance is paid out, only when certain, specified actions or events take place.

For example, if your heir is a minor or young adult, you might put in a contingency that they will not receive their inheritance until they graduate from college or get married. If your heir is a spendthrift, you may include a contingency stating that they can only use trust funds for healthcare needs or general support needs. And, if your child has a substance abuse problem you may state in your trust that they cannot receive their inheritance until they complete a recovery program.

Are contingencies always wise?

Still, some contingencies can be problematic in the end. Take the above example of the minor heir. What if, instead of going to college, they enlist in the military or what if they never marry? These are acceptable alternatives to college and life partnerships in the eyes of many and denying them an inheritance for these may go against your values in the end.

The above examples of the spendthrift heir or the substance abuse heir may be better examples of how to place a contingency on an inheritance. They follow the HEMS standard for contingencies. These are contingencies based on health, education, maintenance and support. A HEMS contingency is clear, measurable and practical. And in the end, this estate planning option can ensure your heirs use their inheritance in a responsible manner.