Establishing a Trust: What if Beneficiaries of the Trust Pass Away Before the Trustor?
By: Tilden Moschetti
Revocable living trusts are very useful both while you are still alive and after death. Unlike other estate planning tools, revocable trusts allow you to maintain privacy, keep control of your assets, and spare your family members from the probate court. Consult with a Calabasas experienced estate planning lawyer to know other ways of distributing or transferring estate assets and naming family members as heirs, such as living trust.
Under basic trust rules and relevant state law, after an individual has created a trust, his or her personal property, real property, or even bank account will be put in the name of the trust. Once they are held in trust, property in trust is owned by the trust and no longer by the grantor.
If you do decide to set up a trust, you must appoint a trustee who shall be managing, investing, and administering whatever assets in a trust account. A revocable living trust you set up can have an individual or a trust company as a trustee. In the case of grantors who are the initial trustees of their revocable trust, the successor you named will manage, invest, and administer the trust if you can no longer make decisions due to incapacity, or when you die.
As stated in relevant trust law, when you create a trust, the fiduciary duty of administering trust property requires a higher standard of care. Trustees are not allowed to use property held in trust for purposes that were not specified in the trust document.
The benefits of an individual if a trust is created
As stated in pertinent trust law, a living trust is extremely helpful if you want to avoid probate after death. If a deceased person established a trust, assets of the estate need not be brought to court to be probated. This is in contrast to a decedent who drafted a last will and testament, where avoiding probate costs is not likely.
Including a trust in your estate plan options is ideal in other ways as well. Income from your trust assets will be given to you during your lifetime. A living revocable trust, in particular, may be amended or revoked throughout the remainder of your life.
Death of trust beneficiaries before that of the trustor
When drafting or setting up a trust or any other estate planning tool, the assumption is that you will pass away before any family member that you designate as a trust beneficiary (usually, a would-be surviving spouse, children, or grandchildren). While this is a valid assumption, it is also possible that you establish a trust and a beneficiary of a trust dies earlier than the one leaving behind the inheritance.
The impact of such an event on your loved ones and original estate plan will be influenced by several factors. Consult with an experienced Calabasas estate planning lawyer to know more about this situation, which is often referred to as a pre-deceased beneficiary.
Creating a trust and pre-deceased beneficiaries of a trust
In the above scenario, the grantor must review trust documents for related provisions. Proceeding with a review of relevant legal documents will ensure that your successor can carry out your wishes on how to distribute or how to transfer estate assets. If no legal document determines how trust accounts and property are to be distributed or treated in the event of a predeceased beneficiary, the state will decide on the fate of this estate property. For your surviving loved ones, this could be a long, legal nightmare.
Take for example an individual who wanted his child to inherit his antique collection. If his child dies before him and his grandchild was not named as a contingent beneficiary, the antique collection might not be given to the intended recipients. If estate planning documents do not identify contingent beneficiaries, they are said to be ‘silent’ on this issue of predeceased beneficiaries.
Appointing a contingent beneficiary
Contingent beneficiaries are secondary or backup beneficiaries of certain assets if the primary or first beneficiary dies before the original owner. In the absence of this, the said asset is to be absorbed back or simply considered as part of the general estate. Oftentimes, it becomes part of the leftover or residuary estate, which will not be specifically received by the family members of the primary beneficiary who you wanted to receive that particular asset as an inheritance. In some states, however, anti-lapse laws are enacted to protect the heirs of the beneficiary. In certain jurisdictions, only blood-related heirs can receive the asset and benefit from these anti-lapse laws.
Seeking legal help from trusted Calabasas estate planning attorneys
For your estate planning options to work as intended, it is important to consult with an experienced estate planning attorney before creating a trust. An expert on trusts and estates can help explain to you the advantages of the different types of trusts. For questions on asset protection through a revocable or irrevocable living trust or clarifications on trust administration, call our law office. Consult with expert Calabasas real estate attorneys at Moschetti Law Group for reliable estate planning services.
At Moschetti Law Group, our practice serves the needs of Founders by providing real estate law and real estate syndication attorney services to Founders. Whether you are the Founder of a real estate empire or building a business and need assistance with purchase and sales, real estate transactions, or real estate litigation, we serve Los Angeles County, eastern Ventura County, and North Orange County from our office in Calabasas. We also have a primary focus on helping Real Estate Syndication Founders throughout the United States with forming their syndication, understanding crowdfunding, private placement memorandums, and operating agreements.