Selection of a beneficiary: who, what, when

Now that you have decided which estate planning instrument (will or trust) you will use and have selected your trustee or personal representative, to whom do you want to leave your property? What property do you want to leave to each beneficiary? When must each beneficiary receive his property? The answers to these questions may seem easy: Leave everything to your children equally and let them figure out the details. However, these questions require further analysis to ensure that your property passes to whom you want it to pass, when you want it to pass, and on the terms you want it to pass to each beneficiary.

Who gets your property?

Initially, this question is easy to answer: my children will receive all my assets. That is easy. But what if one of your children predeceases you? Does that boy have children? What about the spouse of that child? Do you want the spouse to receive something?

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 her estate directly, 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 something to that child but restrict access to what you leave?

A will or trust can be written to include answers to these questions, but the answers require the client to provide thoughtful information.

Instead of asking who would like to receive your property, I will sometimes ask you who you do not want to receive your property. If you don’t want your son-in-law to put his slippery fingers into her inheritance to waste her gambling habits, you’ll probably need to put her daughter’s portion of your estate into some kind of sub-trust for her benefit and that of her grandchildren.

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 it’s very common), it can also be a fight over numerous parcels of real estate. A recent dispute we handled involved a piece of property consisting of the decedent’s home and a couple of commercial real estate parcels. The will provided that all children receive equal shares of the inheritance.

All the children did not get along and the idea of owning property together seemed impossible. A fight broke out over the distribution of the inheritance. A girl did not want to do business with her brothers or to be co-owners of numerous properties.

The decedent had a simple will in a situation where she needed something more complex that would identify the specific property each child should have received or distribute the property to a trust that would be managed by a professional trustee. Specific language about who would receive what specific property, or what would happen to all of the property if the children did not agree to 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 his estate immediately after her death, or years later if he does? Many beneficiaries benefit from leaving their estate in a trust for their entire lives.

If a beneficiary is disabled, you will most likely want to leave that beneficiary’s portion of your estate in a supplemental needs trust (sometimes called a special needs trust) in which the beneficiary never receives an inheritance. Rather it is held in trust for life.

If you have younger children, chances are you don’t want them to receive their share of your estate until they reach a certain age, such as 25, 30, 35, or 40 years old. However, without proper planning, Oregon says that once a child turns 18, they can receive their share of their estate once they turn 18 (except in limited circumstances). Most people do not like this outcome and include a trust for minor children in their will or trust to prevent this situation from occurring. Using a children’s trust, a trustee (whom you designate in your will or trust) will manage the trust assets for the benefit of the child and can use the trust assets to pay for health care, education, housing, etc. of his son. When the son reaches the indicated age, she will receive her remaining assets.

In addition, you may want to leave something to a beneficiary who has spending, gambling, or excessive drinking problems, but you don’t want that individual beneficiary to have control over the property you leave. You can use a trust established for the life of the beneficiary in which the trustee of the trust has absolute discretion over the distribution of the trust assets. Using a trust saves you from having to disinherit a troublesome child, but it also allows you some level of control over how you use your property after your death.

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

Conclusion

Just like making the decision to use a will or trust and who to name as your trustee or personal representative, choosing your beneficiaries should be a thoughtful response. There is no single answer and what works for one client may not work for another as families are unique.