Wills/Trusts and Thinking Hypothetically

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In contemplating a will or trust, the client must think about where they want assets to pass if named beneficiaries die prematurely.

Most clients want their assets to pass to their surviving spouse. If the spouse doesn’t survive, they typically want the assets to pass to their children. However, the client must think beyond the obvious. What if a child dies before the client? Is that share to pass to grandchildren? If so, are the grandchildren old enough to prudently handle an inheritance? Would a trust be appropriate until they attain a more mature age – such as 25 or 30 or even later?

If the client thinks a trust is appropriate, what if the beneficiary dies before attaining the age chosen by the client? Should the trust assets pass to other grandchildren or to those chosen by the beneficiary?

All these issues require the client to think outside the box and consider various factual circumstances that might occur. A recent court case involved a trust which was to pay out income to a beneficiary until the beneficiary attained age 50. At age 50, the trust was to terminate and pay all remaining funds to that beneficiary. Unfortunately, the beneficiary died at age 33. The trust document was silent concerning what happened if the beneficiary died prematurely. As a result, litigation ensued among the various family members, thereby requiring a court to decide the ultimate takers under the trust.

This unfortunate scenario could have been easily avoided if the draftsman had simply asked the client “what if.” The lawyer could have easily suggested to the client one or more options, such as:

If the beneficiary dies before attaining age 50, the trust shall pass to his then living
descendants, per stirpes, and if none, then to his estate.

Alternatively, if the client wished the beneficiary to control where the assets passed, the client could have used this language:

If the beneficiary dies before attaining age 50, the trust shall pass to his estate.

Estate planning lawyers are trained to think hypothetically. A minute’s thought can avoid costly consequences and the unfortunate passing of assets to beneficiaries that the client did not intend.