What Happens to a Living Trust When the Beneficiaries Die?
Living trusts, also known as revocable trusts or inter vivos trusts, represent a private, easy way for people to pass their estates on to loved ones without going through the inconvenience of probate. However, life is not predictable, and unfortunate events can turn the best of planning upside down. When a beneficiary dies before the trust owner passes, it creates a shakeup of the trust plan.
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The Beneficiary
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The beneficiary in a trust is the party named to receive any assets identified in the trust once a trigger event happens. Frequently, the trigger event is the death of the trust owner. The beneficiary must be identified in writing in the trust to have any legal claim to the trust assets. Beneficiaries can be both the party that settles the trust, or third parties entirely outside the administration of the document, and recipients only.
Beneficiary Death
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The passing of a beneficiary, before a trust distributes assets, means that those items that would have otherwise gone to that beneficiary no longer pass. To anticipate this scenario, many trust lawyers and templates include a secondary beneficiary if the first named beneficiary for a particular asset or group of items dies prematurely. This clause frequently takes care of the problem caused by the unexpected passing. If there is no secondary beneficiary, however, the deceased beneficiary's estate does not have an automatic claim. So, for example, the wife of a deceased beneficiary cannot exert a demand on the trust since she was not the named beneficiary.
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Alternatives: Amendment
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Living trusts frequently include a clause that allows the owner of the trust to amend or change the details as desired. This option is exercised most often when the owner wants to add new assets to the trust or change existing ones and their distribution. However, the option can also be used to change beneficiaries named by adding, deleting or changing what is to be given. If a beneficiary passes away prematurely, a living trust owner can use the amendment option to cancel out that beneficiary and redistribute to others named as well.
Alternatives: Cancellation
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One of the powerful choices a trust owner can make if he decides a trust simply doesn't work, as desired, is to cancel it if it was a revocable trust. In this case, any beneficiaries, alive or dead, would then be nullified legally from any asset rights. The trust owner can then have an entirely new trust written up and put into effect, then becoming the legal document of asset distribution.
Caveat: Items Outside the Trust
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Often due to life changes or time, items and assets exist that may be outside of the trust. Only those assets specifically named in the trust and changed in title are included in the trust distribution. Assets named in a will instead will go to the will's beneficiaries, irrespective of whoever is included in the living trust. The two documents function as entirely different legal powers. Further, a trust beneficiary's death would have no effect on a will unless the deceased beneficiary was also named in the will.
Plan Wisely
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Trusts include complicated legal maneuverings that sometimes are best crafted by lawyers. Don't risk your estate with a do-it-yourself template if you don't know what it actually means or does. Refer to a lawyer, at least for a basic consultation, before finalizing any home remedy approaches. Otherwise, your best laid plans may get thrown out by a court due to a legal deficiency or mistake.
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