Selecting a Beneficiary: Who, What, When

Now that you have decided which estate planning instrument (a will or a trust) you will be using and you have selected your trustee or personal representative, who do you want to leave your property to? What property do you want to leave to each beneficiary? When should each beneficiary receive your property? The answers to these questions may seem easy – leave everything to your children in equal shares and let them figure out the details. However, these questions require further analysis to make sure your property passes to who you want it to pass to, when you want it to pass, and on the terms you want it to pass to each beneficiary.

  • Who Receives your Property?

Initially this question is easy to answer: my kids will receive all of my property. That’s easy. But what happens if one of your children passes away before you? Does that child have kids? What about that child’s spouse? Do you want the spouse to receive anything?

What happens if after executing your will or trust, one of your children becomes disabled and is receiving government benefits? Do you want that child to receive his share of your estate outright, thus disqualifying him for government benefits?

Do you want to write one of your children out of your will or trust? Would it be more advisable to leave that child something but restrict her access to what you leave her?

A will or trust can be drafted to include answers to these questions but the answers require the client to provide thoughtful input.

Rather than asking who you would want to receive your property, I will sometimes ask who you don’t want to receive your property. If you don’t want your son-in-law to get his slippery fingers on your inheritance to waste on his gambling habits, you’re probably going to need to put your daughter’s share of your estate in some sort of a sub-trust for her and your grandchildren’s benefit.

  • What Property does Each Beneficiary Receive?

A common probate dispute involves which beneficiary gets what. This isn’t always just a fight over worthless trinkets (although very common), it can also be fights over numerous parcels of real estate. A recent dispute we handled involved an estate that consisted of the decedent’s house and a couple parcels of commercial real estate. The will provided that all of the children receive equals shares of the estate.

All of the children did not get along and the thought of having these kids own property together seemed impossible. A fight erupted over the distribution of the estate. One child didn’t want to be in business with her siblings or co-own numerous properties.

The decedent had a simple will in a situation where she needed something more complex that identified the specific property each child should have received or that distributed the properties to a trust to be managed by a professional trustee. Specific language as to who would receive what specific property, or what would happen to all of the property if the children disagreed on the distribution would have possibly saved everyone substantial attorney fees.

  • When Does the Beneficiary Receive the Property?

The timing of a distribution can be extremely important. Do you want a beneficiary to receive the beneficiary’s share of your estate immediately following your death, or years down the road – if ever? Many beneficiaries benefit from having their inheritance left in a trust throughout their lifetime.

If a beneficiary is disabled you will most likely want to leave that beneficiary’s share of your estate in a supplemental needs trust (sometimes referred to as special needs trust) in which the beneficiary never receives his inheritance. Rather it’s held in trust for his lifetime.

If you have younger children you most likely don’t want them to receive their share of your estate until they turn a certain age, like 25, 30, 35 or 40. However, without proper planning Oregon says that once a child turns 18, they can receive their share of your estate once they turn 18 (except under limited circumstances). Most people don’t like this result and include a trust for minor children in their will or trust to prevent this situation from occurring. Utilizing a trust for minors, a trustee (who you appoint in your will or trust) will manage the trust assets for the child’s benefit and can use the trust assets to pay for your child’s healthcare, education, housing, etc. When the child reaches the stated age, he will receive whatever property remains.

Also, you may want to leave something to a beneficiary that has spending problems, gambles, or drinks excessively but you don’t want that individual beneficiary to ever have control over the property you leave for him. You can utilize a trust set up for the beneficiary’s lifetime in which the trustee of the trust has absolute discretion over the distribution of trust assets. Utilizing a trust prevents you from having to disinherit a trouble child but also allows you some level of control over how he uses your property after you pass away.

You may also have a child that is a doctor, lawyer or in another profession where potential malpractice or negligence claims could wipe out that child’s estate. By leaving that child’s share of your estate in a trust for the child and his family’s benefit (with an independent trustee) you may be able to prevent his creditors from receiving his inheritance.

  • Conclusion

Just like making the decision whether to use a will or trust and who to name as your trustee or personal representative, choosing your beneficiaries needs to be a well thought out answer. There is no single answer and what works for one client may not work for the next since families are unique.

© 2/20/2014 Kevin J. Tillson of Hunt & Associates, P.C. All rights reserved.

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