Trust Fund Options for Paying Adult Beneficiaries an Inheritance
When deciding who you want to inherit your estate after you die, aside from figuring out who will get what, you’ll need to determine how and when they’ll get it. For adult beneficiaries, there are three options for giving them their inheritance: outright, in stages, or in a discretionary lifetime trust.
See Julie Garber, Trust Fund Options for Paying Adult Beneficiaries an Inheritance, www.thebalance.com, July 23, 2018
This part of the Distribution Planning series discusses the effect of leaving your assets outright to your adult children.
People understand why minor children and even young adults shouldn’t inherit property outright. Someone with more maturity and experience needs to manage the assets and make spending decisions. That’s why for minors and young adults, inheritances routinely are left in trusts at least until the youngsters are older.
Consider the risks of leaving wealth outright even to grown children and these benefits of using inheritance trusts to hold bequests for them.
See Bob Carlson, Leaving Assets Outright to Adult Children, www.forbes.com/,
Estate planning is more than just planning to avoid probate. You can also develop a very specific plan for the distribution of your assets. In the series of blog posts entitled “Distribution Planning”, we will discuss the different options of distributing your assets and the pros/cons of each one.
The first part of this series discusses “Common Pot Trusts”.
The Common Pot Trust takes this concept of spending for your minor children as needed and applies it to your trustees. Instead of your will or trust passing your estate into separate, equally funded trusts for each child, the whole “pot”, is combined into one trust that benefits all the children together until they all reach adulthood.
If both parents are tragically gone during their children’s minority, then the trustee (the person overseeing and dispensing money from the “pot”) is directed to spend as if he or she is like a surrogate parent – he or she spends money on the kids in the same way that the parents would if they were alive.
See Scott R. Zucker, Esq. , Common “Pot” Trusts – Why You Shouldn’t Treat Your Children Equally, estateplanninginfoblog.com, July 23, 2018.
A recent California Case highlights the importance of making sure you review your estate plan and beneficiary designations every couple of years. The beneficiary listed on retirement plans and Life Insurance policies supersede anything your write in your Will or Trust.
This was reinforced in a recent case where an Ex-Spouse received the life insurance proceeds of her former spouse after his death because he never took her name off of the policy, even though he wrote in his Will that he didn’t want anything to pass to her.
Be sure to check your beneficiary designations to ensure they are up-to-date with your current intent.
Here are the facts to the case mentioned above:
Estate of Post
Decedent Jerome Norman Post purchased a life insurance policy during his lifetime and named his then-spouse, Angela Post, as the primary beneficiary, and his sons from a prior marriage, Kenneth Post and Eric Post, as the contingent beneficiaries. Decedent was divorced at the time of his death, but he had not changed the beneficiary designation on his life insurance policy to remove his former spouse as the primary beneficiary. He had executed a codicil to his will shortly before his death expressing his strong desire that his former spouse receive nothing from him after his death, including by beneficiary designation. Decedent’s sons sought an Order designating them as the rightful beneficiaries of the decedent’s life insurance policy under Probate Code Sections 5040 and 9611. The appeals court found in favor of the former spouse and she was entitled to receive the life insurance proceeds.
In most cases, it is perfectly fine to have an out-of-state family member or other individual act as the personal representative (executor/administrator).
If you have questions regarding your status as a personal representative residing outside California, I encourage you to contact me. We are experienced in working with a personal representative who lives out-of-state and can make the process extremely efficient for you. Call us now for a no charge consultation: (858) 485-1990.
A revocable living trust can only control the assets that have been transferred into it. This process of changing titles and beneficiary designations to your trust is called “funding your trust.” It is a simple concept, yet it is what keeps you and your family out of Probate in the event of your death; it also allows you to keep more control over the distribution of your assets to your beneficiaries.
While you may intend to put everything into your trust, you may inadvertently leave something out of it. For example, you could acquire new assets after creating the trust and simply not get around to titling the assets in the name of your trust. Your pour over will states that if a “forgotten” asset is discovered after you die, the asset is to go into your trust. It may have to go through Probate first, but at least your pour over will catches the asset and sends it back (pours it over) into your living trust so it can be distributed as part of your overall estate plan.
Remember, a pour over will is simply a safety net. It is not a substitute for changing titles and beneficiary designations while you are alive. If your intention is to avoid probate (which is probably a big reason why you set up a living trust in the first place), you must fund your trust.
If you are unsure whether your Trust is properly funded, please contact us today.
Our website has the handout we gave out at our most recent presentation to our clients and friends regarding a Trustee’s job in administering a Trust after a death.
Here is the link to the handout: Your Job as Trustee