If the Grantor wishes to limit or control how and when a specific heir is to receive their inheritance the Grantor may impose conditions on the distribution of assets. Grantors may also choose to change the original allocation of assets among the beneficiaries in subsequent codicils, amendments, and restatements to the original Will or Trust.
What are Conditions on Inheritance Distributions and Locked Share Disinheritance?
Some of the most common conditions placed on inheritance distributions are below:
- Imposing a specific age to receive a lump sum, or specific age increments to receive set percentages. For example, an heir may not become entitled to their full share until age 30, or may only become entitled to a 25% portion of their inheritance upon turning 25, then a 50% upon turning 50
- Holding an heir’s share in a trust to only be distributed at the discretion of the trustee only for health, education, maintenance, or support of the heir or beneficiary (this is called the “HEMS” standard)
- Requiring an heir to meet a specific goal, or set of conditions, such as obtaining a college degree, getting married or having children before receiving an inheritance
- Requiring the trustee to withhold an heir’s share if they are abusing drugs, alcohol or engaging in criminal activity
- Establishing a Special Needs Trust to severely limit distributions for the purpose of preserving an heir’s entitlement to disability or other government benefits
Legal Issues with Conditions on Inheritance
Grantors may place conditions on inheritance distributions out of concern for the financial well-being of their heirs. However, if an heir’s inheritance is effectively locked in the trust, and is controlled by an individual/Trustee (for example, a sibling) who subsequently refuses to treat the beneficiary in a fair manner and/or refuses to distribute the inheritance in accordance with the distribution terms, the heir subjected to a locked share. Heirs who have been effectively disinherited by the circumstances of a locked share may want to consult with an attorney about potential legal recourse.
While Grantors have the right to place conditions on the distributions of their assets, an experienced trust and estate litigation firm may be able to help locked-share heirs evaluate potential legal options based on the facts of each situation. Legal options could include petitioning the probate court to: (1) challenge the validity of the trust based on undue influence, lack of capacity or fraud; (2) terminate the trust to effectively force a full distribution, (3) temporarily or permanently suspend the trustee for breach of fiduciary, or replace the trustee with a neutral licensed fiduciary, (4) force the trustee to provide an accounting, (5) order the trustee to make specific distributions, or (6) order the trustee repay any improperly allocated amounts (this is called “trustee surcharge) (if trustee theft or wrongdoing are discovered).
The claims above require filing a lawsuit against the trustee. Lawsuits can take 2-3 years or longer to resolve, and often result in substantial legal fees. Unfortunately, the heir must bear the costs of their own attorneys’ fees under California law. Some attorneys take cases on a contingency fee. Reach out to Albertson & Davidson, LLP for a free case consultation.
