When Parents Won’t Let Go: Micromanaging Homes in Family Trusts

Family trusts can be helpful estate planning tools. A trust can protect a household’s assets, and effectively pass wealth along to family members.  Those who receive income or assets from a family trust are called beneficiaries.

But some of the people who are supposed to benefit may not entirely appreciate the gesture. They might resent the “dead-hand control” over their inheritances.

Let’s talk about deed holders’ decisions to pass along assets with strings attached.

Dead-Hand Control: The Meaning of the Phrase

What’s known as dead-hand control occurs when property owners make their bequests conditional upon the heirs behaving in a certain way.

A deed holder could decide to make an inheritance contingent on the recipient’s sobriety, for example. With this style of “incentive trust” the beneficiary would be checked on by a trustee before getting a certain asset.

Or maybe the trust distributes money faster when the child becomes a college grad.

And so on.

Incentive trusts can age badly. Situations and people change, and the conditions of a trust can turn out to be unnecessary or awkward. New laws can even make the trust’s conditions obsolete. Yet courts do tend to leave trusts alone, as long as they don’t offend public policy.

What Trust Conditions Offend Public Policy?

It’s well accepted that assets placed in trust can come with certain conditions to the beneficiaries. But a court could declare trust provisions invalid if the trust maker tries to:

• Interfere with the ability of beneficiaries to freely travel.

• Encourage a beneficiary not to get married, or to leave a spouse, or to reject legal obligations to support someone.

• Suggest that the beneficiaries act contrary to established law, or engage in any type of crime.

These are the kinds of stipulations most likely to land a trust in court. So, while family trusts can help preserve family wealth for future generations, they can’t be used to circumvent basic legal realities. But as long as everything you stipulate in your trust is on the right side of law and policy, you can have no-contest language written in. This means beneficiaries will have to go along with the trust, as-is.

Note as well that trusts are governed by state laws. So look for an attorney admitted to your home’s state for case-specific guidance. There are attorneys and law firms that focus on estate planning under your state laws. Your trust can name your estate attorney and your accountant after you have discussed your planning with them.

Important note: Please do not treat this article as legal advice. A generalized article can help you understand your options. It cannot address the specific situation you and your loved ones are in. It’s easy to wind up losing assets by skipping a consultation with an experienced attorney.

Transferring the Deed From a Trust After Death

The trust creator can place assets in the trust or remove them, generally without tax impacts, during life. This includes real estate.

The trust creator’s death changes the living trust into an irrevocable trust. At that time, your successor trustee will manage the trust. The successor you pick is responsible for following your instructions as laid out in your trust document. They’ll carefully read the trust, understand it, and behave in its best interest.

Beneficiaries you name in the trust must adhere to your directions for receiving any assets out of the trust. That is, the trustee may convey a deed out of the trust when beneficiaries reach a named age or carry out the requirements described in the trust document.

Deeds.com offers trustees’ deeds. Go to the link for your state to find yours. For example, visit the explanation of the Pennsylvania trustee deed, and you’ll see that a trust with one person who’s a trustee may not direct all of the assets to go to that one person.

Trust law can be thorny! For example, it’s critical to understand the tax consequences of passing assets along through your trust. Consider sitting down with a wills and trusts attorney or a qualified financial adviser for more on the consequences of moving into, selling, or renting out the trust home.  

The Testamentary Trust Is Another Option

Did you know? You can write a testamentary trust right into your will. It will take effect upon your death. You can update your will to change it at any time while you’re living.

A homeowner who still has underage children can benefit from knowing about the testamentary trust. It’s possible to write a will that says your assets should be delivered to your beneficiary when something happens, like your child comes of age.

This does make your will somewhat more complex than others. Your county’s probate court will have to assign an annual review of your trust until it is completed. The trust creator needs to anticipate fees for the stewardship of the assets until then.

Don’t be the intestate deed holder. Write your will!

To create the testamentary trust, the will maker describes the asset (such as a home) to be passed. The will maker names who will receive the asset(s), when and how.

Unless the will says the trustee can change the terms, the language in the will controls what happens to the deed or other asset(s).

As with a regular trust document, you can change your will any time while you are living. You just need to make a new will, including language that says you hereby revoke all previous wills and codicils (amendments).

All in the Family

A trust keeps an estate plan organized. It can keep assets safely for future generations. It may offer tax advantages. It also bypasses the local probate court, making it harder for survivors to contest your wishes after you pass on.

And the trust is more discreet than a will. This is because a will must go into probate, and that is a public court proceeding.

But the question for today is just how much control you want and need to keep over your estate after you go. Some estate planners recommend passing control over the assets to beneficiaries as soon as reasonably possible. If you’re too restrictive, unforeseen circumstances may cause your plans to become stifling and unhelpful later.

All that said, a trust can give you confidence, knowing that your deed will go to the person you designate.