Estate plans are intended to take a lot of the guess work out of what should happen if something unexpected comes up in the future. The information below describes some possible what-if scenarios, and how the estate plan documents often address those scenarios.
What if something happens to a named beneficiary?
If a named beneficiary passes away before the client, then most trusts provide that the pertinent share will be distributed as follows: first, to the named beneficiary’s surviving lineal descendants (children), and second, if there are no surviving descendants, then the pertinent share is usually divided among any other named and surviving beneficiaries.
What if all the beneficiaries are gone?
In the extremely rare event that none of the named beneficiaries survive the client, and no descendants of named beneficiaries survive, then usually, the trust estate would be distributed to the client’s next closest relatives, though this provision can be customized if a client wishes to do so.
What if the people named in charge of the trust or will are gone?
Trusts and wills usually have backup nomination terms, in case all of the named people are unavailable to serve as Successor Trustee or Executor. For example, in many trusts, the beneficiaries can select a new Successor Trustee, by majority vote, or by unanimous agreement. When appropriate (such as when all the beneficiaries are still young), the Successor can be limited to “licensed professional fiduciaries” only — people who are licensed by the State of California to administer trusts. If the beneficiaries disagree on the choice of a Successor, then a petition can be filed in court for a local judge to select a Successor.
What if one or more of the beneficiaries is too young to handle inheriting a lot of money?
A well drafted trust will contain a “minimum distribution age” provision. Anyone younger than the stated age (say, 25 for example) will not receive their share of the estate directly, even if they are already over 18. Instead, the Successor Trustee will manage that beneficiary’s share of the estate, according to a detailed set of laws known as the Prudent Investor Act. Under the law, the Successor Trustee must invest the share in safe, long term investments. The Trustee may only spend portions of a young beneficiary’s inheritance on expenses deemed important and reasonable: health, education, or support and maintenance, after taking into account other sources of money available to pay a given expense. Otherwise, the money is left alone to accumulate, and when the beneficiary reaches the stated distribution age, they receive their inheritance.