A restricted gift is a gift given conditionally where, later on, at the time of the testator’s death, it will not necessarily be known whether the condition has or has not been satisfied. A restricted gift can also mean a gift given for only a limited time or for a limited purpose, such as a gift of real property as a life estate. A restricted gift may require somebody to continue to monitor whether the condition of the gift has been satisfied, sometimes long after the testator’s death. It is this possibility of continuing to have to monitor whether a condition has been met that makes restricted gifts expensive and cumbersome to enforce. This additional cost and difficulty is the reason why restricted gifts are not part of a simple will or a basic estate plan. Restricted gifts should be drafted carefully, in consultation with an estate planning attorney, and they often require the use of a trust. Some kinds of conditions on gifts are not enforceable under the law.
Below are examples of restricted gifts.
In Example 1, assuming David is not yet 35 when the gift is written down, it is unknown at the time the gift is written down whether David will ever reach age 35. Because it is not known at the time the gift is written down whether the condition will or will not have been satisfied by the time of the testator’s death, this is a restricted gift. If David is under 35 when the testator dies, then somebody will have to keep track of David until he reaches his 35th birthday. This is considered a restricted gift even though David might turn 35 before the testator dies, which would satisfy the condition and eliminate the need for monitoring the gift.
In Example 2, it is unknown at the time the gift is written down whether David will ever graduate from college. David might never attend college. It would be impossible to know whether David will ever graduate from college until he either graduates from college or dies.
In Example 3, it is unknown at the time the gift is written down whether the testator’s wife will ever remarry. Such a gift would require ongoing monitoring of the wife’s marital status after the testator dies.
To determine whether a conditional gift you want to make is a restricted gift, ask yourself if you will know with certainty at the moment you write down the gift whether the condition you are placing on the gift will necessarily have been either satisfied or not satisfied within a few days after your death. If your answer is “no”, then it is a restricted gift. You may also want to read about unrestricted gifts for more examples.