What is vesting and why is vesting important?  Vesting occurs when an interest becomes an
enforceable legal right.  Until vesting
occurs, an interest is a mere expectancy.
Let us examine vesting in the context of estate planning.

First, let us consider vesting in the context of a
will.  Anyone named as a beneficiary in
another’s will has a mere expectancy in receiving a future inheritance.  Only when the person dies does the beneficiary’s
rights under the will vest.  This can be
changed, of course, by the beneficiary predeceasing  the testator of the will, any creditor claims
against the deceased testator’s estate, and perhaps even a will contest, as
relevant.  Until then, the named
beneficiary has only a mere expectancy of a possible future inheritance.  The will can always be re-written to reduce
or eliminate the beneficiary’s inheritance; the assets in question can be sold
or spent; the beneficiary might die; and creditor claims might reduce the
estate.  Any and all of which can occur
without the involvement or consent of the potential Will Beneficiary.

Next, let us consider the case where someone gifts real
property subject to a reserved life estate.
In this case, the transferee (recipient) named in the deed has an
immediately vested right in a future interest.
Like the beneficiary named in the will, the transferee’s rights mature
later when the transferor dies.  But,
unlike the will beneficiary, the transferee in the deed has a legal right that
cannot be defeated by any changes in the wishes or fortunes of the
transferor.  Even if the transferee is
not alive when the transferor dies, the transferee’s estate (or living trust)
owns what is called a “vested remainder interest” in the subject

Now let us consider a beneficiary of a living trust.  So long as the living trust is revocable, the
rights of any trust beneficiary is subject to change through amendment or
revocation of the trust.  That said,
unlike a will, a living trust commences while the settlor (person who
established the trust) is still alive.
While the settlor is alive, other people, such as the settlor’s family,
may be allowed rights in the trust to benefit from trust distributions.  These rights are vested and enforceable
against the trustee (legal owner).  But so
long as the trust is amendable or revocable these rights can be reduced or
eliminated at the pleasure of the settlor(s).
Once the living trust becomes irrevocable, at the death of the
settlor(s), then the terms of the trust, including the rights of the
beneficiary, are unalterable.

That does not, however, mean that the death beneficiaries of
the trust are necessarily entitled to outright distributions. Some inheritances
are held in further trust with the trustee given some or complete discretion
over when, how much, and how to make distributions.  For example, a beneficiary of a fully
discretionary special needs trust has no right whatsoever to demand
distributions.  But such a beneficiary
does have a vested interest in the trust to enforce other rights, such as
requesting an accounting.

Persons named as death beneficiaries in a living trust are
in the same situation as a will beneficiary.
That is, their rights only vest once the settlor(s) dies.  Until then, the settlor(s) can amend or
revoke the living trust, can sell or spend the trust assets, and can lose the
trust assets to creditors.  Any and all
of which events can reduce or eliminate the death beneficiary’s expectancy of
an inheritance.

As the saying goes, “don’t count your chickens before
your eggs have hatched.”  That sums
up the situation when it comes to mere expectancy of a future inheritance as
opposed to a vested right.

“Serving Lake and Mendocino Counties for nineteen years, the Law Office of Dennis Fordham focuses on legacy and estate planning, trust and probate administration, and special needs planning. We are here for you. 870 South Main Street Lakeport, California 95453-4801. Phone: 707-263-3235.”