Dead hand control can play a significant role in your Estate Planning efforts. Learn the ins and outs of this not-often discussed aspect of an Estate Plan. We’re looking at what dead hand control actually means, why you may or may not want to use it and what the pros and cons are of implementing it into your Trust.
What is Dead Hand Control?
Dead hand control is a tactic used in Estate Planning that allows the owner of an estate to control property and beneficiaries even after death. Essentially, it’s a way to put in place stipulations or conditions that a beneficiary must abide by in order to receive his or her inheritance. It’s often used with the intention of protecting a beneficiary who may have shown financial irresponsibility or bad behavior in the past.
What is the Purpose of Dead Hand Control?
There are several different reasons you may decide to implement dead hand control. For example, if a beneficiary has a history of addiction or drug and alcohol abuse, you may question their capability of handling an inheritance responsibly. Or, maybe work ethic has been an issue in the past. In these cases, dead hand control might mean an inheritance could be tied to sobriety, a steady job or an income base.
If you plan to utilize dead hand control, one way to do so is by setting up an Incentive Trust. This type of Trust intends to motivate a beneficiary to fulfill or abide by the conditions you set forth.
Let’s say Johnny is your son and he has struggled with alcohol abuse the majority of his young adult life. He’s been sober for one year, and you tie a condition of his sobriety to his future inheritance. A Trustee would be responsible, at some point, for verifying that Johnny has remained sober so that a portion (or all) of his inheritance can be disbursed to him.
What Are Benefits of Dead Hand Control?
Dead hand control can obviously be beneficial if you question a beneficiary’s ability to handle his or her inheritance. It’s not hard to set up certain conditions via a Trust. And, they could be fairly simple for a Trustee to monitor. You can require bank statements, W2s, proof of sobriety or any other reasonable proof that would establish a beneficiary is living up to your conditions. This can potentially give you peace of mind that the inheritance you leave to a loved one will not be mismanaged or lost.
What Are the Problems Around Dead Hand Control?
While in some cases, dead hand control can be a viable solution for nervous Grantors (the person who creates a Trust), there actually are quite a few problematic aspects to it. Even though it’s often used with good intentions, the desire to control a beneficiary after you pass away can sometimes go awry.
One huge issue could be circumstances that change over a long period of time. For example:
Beneficiaries can drastically change their lifestyle, which might totally eliminate the need for dead hand control stipulations
The world itself can dramatically change between the time you write your Trust and the time you pass away and distributions are made
Legal changes can become an issue if they have to do specifically with how dead hand control is executed (or if it is allowed)
How Much Dead Hand Control is “Too Much”?
Ultimately, your Estate Plan is highly personal, and the decisions you make need to make sense for your goals and your desire for beneficiaries in the future. That said, it’s not uncommon for dead hand control to end up being so controlling and/or restrictive that it actually hinders the very beneficiary it’s set up to help.
Thoroughly think through your decisions before using dead hand control, as courts are not likely to overturn any requirements you establish. One thing to note here: There are some limitations based on "Public Policy." An extreme example would be offering an incentive distribution for a beneficiary committing murder. That type of provision would not be enforceable as it encourages a behavior that is contrary to public policy.
More realistic examples might be a provision that impedes a beneficiary's free exercise of religion; encouraging divorce; discouraging child support; etc. These are contestable and can be found to be an invalid restraint.
The most common argument that makes its way to a court seeking a change has to do with a beneficiary trying to make a case that he or she has changed so much, if the grantor were still alive today, a dead hand control stipulation would not need to be included.
Other times dead hand control may not be appropriate would be:
Encouraging a beneficiary not to get married
Committing any type of crime
Requiring a divorce or legal separation
Avoiding affiliation with a religious sect or group
Suggesting an abandonment of obligations to a child or dependent
Just like with most things in Estate Planning, dead hand control needs to be carefully thought out and explored before using. Sometimes, it might make sense…but it is important to really understand the pros and cons to see if it’s something you truly want to include in your Estate Plan.