This just in from the “reaching out from the grave” department: Can you impose conditions on your grandchildren’s inheritance such as requiring them to marry someone within your faith or else they lose the trust funds? This interesting question is currently in litigation before the Illinois Supreme Court.

Looking at In re Estate of Feinberg, Max Feinberg created a trust in which he declared that any grandchildren or lower descendants who marry outside of the Jewish faith are to be treated as if the grandchild predeceased the grandparents, thereby denying the grandchild a share of the inheritance unless the spouse of such descendant has converted to the Jewish faith. The parties to the litigation call this “the Jewish clause”.

An Illinois circuit court held that this Jewish clause was invalid and an appellate court confirmed, both finding the clause unenforceable and against public policy. Generally speaking, courts will find such constraints against public policy if they either encourage divorce or discourage marriage itself.

One of the judges of the appellate court disagreed, stating that the clause should be held valid. “Max and Erla had a dream…to preserve their 4,000 year old heritage,” Justice Alan J. Greiman noted.

Max and Erla Feinberg were survived by five grandchildren. All of the grandchildren married, but only one married a Jew. Several cases erupted against the estate plan. They were consolidated into one case and the question about the Jewish clause went to the appellate court.

One of the grandchildren, Michele Trull, who had married a non-Jew sued the co-executors of the estates. Those executors happened to be Michele’s father, her aunt and uncle. Michele claimed that the three had engaged in a conspiracy to evade estate taxes and had misappropriated millions of dollars from her grandparents’ estates. Apparently the amounts left in the grandchildren’s shares exceeded the Feinberg’s generation skipping tax exemption. So the executors sought to enforce the Jewish clause to pull amounts back to the children’s generation, to which the executor’s belonged.

The executors of the estate sought to have Michele’s case dismissed because the Jewish clause deemed Michele to have predeceased her grandparents and therefore she had no interest in the estate.

The appellate court’s opinion explored the public policy argument voiding the Jewish clause. Such a clause is invalid if it encourages disruption of a family relationship, discourages formation or resumption of such a relationship, or seriously interferes with a beneficiary’s freedom to obtain a divorce or exercise his or her freedom to marry.

It is conceivable that such clauses “could just as well result in the courts being required to enforce the worst bigotry imaginable,” Justice Quinn noted. “Courts are not well suited to decide all the various questions that might arise in the enforcement of such conditions. What would happen if one of Max and Erla’s grandchildren initially married a non-Jewish person but subsequently married a Jewish person? Would the grandchild be resurrected upon the second marriage?”

Justice Greiman, on the other hand, who dissented, examined a multitude of cases from outside Illinois. Most were decided in the 1950s or earlier, but sided with enforcing such a clause. According to those cases, “partial restraints on marriage are valid unless they are unreasonable, and therefore conditions on gifts prohibiting a beneficiary from marrying a specific individual have been upheld.”

Given the heated exchange between justices Greiman and Quinn, the Illinois Supreme Court has agreed to hear the case.

It’s an interesting question. The larger question is to what extent should estate plans govern the lives of its beneficiaries? Clearly leaving amounts in trust for further generations has its benefits, including possible estate tax savings (so long as one doesn’t exceed the generation skipping tax exemption that may have occurred in this case) and creditor and predator protections. One has to be careful, however, to keep the trust flexible enough to change with the needs of one’s descendants.

Here, Max and Erla Feinberg clearly had a goal to preserve their faith by coercing financial gain and loss. Did they go too far? We’ll find out when the Illinois Supreme Court rules.

©2009 Craig R. Hersch