Controlling From the Grave

You spent your entire working life earning and saving to enjoy your retirement. But unless you plan to “bounce” the last check at the end of your life, you probably plan to leave something to the next generation. To do this effectively, it’s important to have a plan. Estate planning provides you the tools to ensure your wishes are carried out after your death. However, it’s important to use these tools responsibly, placing too many restrictions on how your assets are distributed can lead to unintended consequences. Often referred to as “dead-hand control,”¹ such provisions may start with good intentions, but can result in long-term tax and legal complications.

For many of us, we understand what we want or need from our investments. While we are alive, financial advisors help us navigate our financial course, guiding us on key factors like tax efficiency, diversification, asset location, and asset allocation. The next generation, or even our siblings, may not follow the same journey or have the same guidance. But does that mean you should dictate what they do, how they do it, and when? Will placing everything in a trust with guardrails, age requirements, complex approvals, and multiple trustees truly protect them from themselves?

Reasons Not to Control from the Grave

You may have a clear vision for how your beneficiaries should receive their inheritance, but the reality is you could unintentionally create problems persisting long after your passing.

• Extreme complexity – Overly complicated estate plans can place a heavy burden on your trustee(s) and executor(s). Instead of helping, these provisions may lead to frustration, family disputes, and legal complications. A well-drafted trust should simplify the administration, not make it more difficult.
• Legal challenges – Excessive or overly restrictive provisions can be contested in court. In some cases, they may create administrative complications that undermine or potentially unravel your original intentions.
• Family relationships – Estate planning can be challenging, even when you are trying to be “fair.” But fairness is subjective, what seems fair to one person may not be fair to another. Is equal always fair? Did one child provide more care and assistance during your lifetime? Does another have greater needs due to medical or financial issues? Trying to define family relationships through money can deepen emotional rifts leading to resentment rather than resolution.
• Changing circumstances – A rigid estate plan may lack the flexibility needed to adapt to your beneficiaries’ evolving needs. What works for them at age 25 might not suit them at 45. Life events such as health issues, job loss, or shifting family dynamics can significantly change their circumstances, and a lack of flexibility could unintentionally prevent you from providing meaningful support to your heirs.

In short, too much control can turn a gift into a burden. One client insisted on a tightly controlled trust for her adult children. Although they had always been responsible, she wanted to ensure the inheritance wouldn’t be squandered. To protect the assets, she required distributions after age 35 receive unanimous approval from all siblings. The result? Years of delays, expensive legal consultations, and rising tension among the siblings. When the oldest child needed support during a divorce, they couldn’t access the funds without meeting the trust’s strict requirements. Though all the children were responsible, the youngest sibling couldn’t agree that their mother’s legacy should be used for such personal affairs. From that day on, their relationship changed, and they eventually stopped speaking. The family ultimately went to court to break the trust, turning what was meant to be a lasting legacy into a prolonged source of stress and strained relationships.

It is important to recognize that there are many valid reasons to place limitations on how your assets are distributed after your passing. For example, a Special Needs Trust² ensures distribution of assets to beneficiaries with disabilities without jeopardizing their eligibility for valuable means-tested public assistance. For other considerations, like addiction issues, overspending concerns, preserving wealth within the family, or addressing other long-term needs, estate planning is essential. Even so, it’s wise to keep complexity to a minimum whenever possible.

Whether we like it or not, our children and grandchildren may not view earning, investing and saving the same way we do, or the same way as one another. Then again, we probably didn’t see money the same way our parents did either. These generational differences don’t mean one group is better with money than another, just different.

That’s why it’s important to talk through your goals, both for family and charitable giving, as it relates to your investments and other assets for estate planning. Your financial advisor can be a great sounding board to help you think through these decisions before you walk into the attorney’s office.

Source:

1. What You Need to Know About “Dead Hand Control” | Trust & Will
2. Special Needs Trust (SNT): What It Is And How It Works – Forbes Advisor

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