people make about who will receive an inheritance share from their estate can
sometimes fall far off the mark.

Peculiar results may occur when an intended beneficiary survives just long
enough to inherit but not so long as to enjoy their inheritance.
  This situation arises when a beneficiary dies
during, or soon after, settling of a deceased benefactor’s estate.
  Let us consider what sometimes happens to the
inheritance left to a beneficiary who dies shortly after the benefactor and
what can be done to avoid unwanted consequences

          One unwanted
result in estate planning that may occasionally occur in the settling of a
deceased benefactor’s estate is that the estate of a beneficiary may be forced
into a probate; even if the beneficiary’s own estate without the inheritance would
not otherwise have been probated.  Any
share that is left to a beneficiary who dies becomes part of that beneficiary’s
own estate.  If such inheritance pushes
the total appraised value of the deceased beneficiary’s own estate over the
present one-hundred and fifty thousand dollars ($150,000) threshold for probate
then a probate will be necessary; unless of course the deceased beneficiary
happens to have been the spouse of the deceased benefactor. 

way to avoid triggering an unintended probate of a beneficiary’s own estate is
to name the beneficiary’s own living trust as the beneficiary, instead of
naming the beneficiary personally.  By
transferring the inheritance to the beneficiary’s own living trust the
inheritance never becomes part of the deceased beneficiary’s estate, and avoids
probate.  Once received by the trustee of
the beneficiary’s own trust the inheritance would be controlled and distributed
by the trustee under the trust’s own terms.
That is, after all legitimate debts and expenses related to the benefactor’s
deceased beneficiary, what remains passes to the beneficiaries of that trust. 

can also sometimes lead to another peculiarity.
The fact that the inheritance is passed through and is distributed to
other living beneficiaries may mean that persons whom you never wanted to benefit
(or not to benefit so much) now inherit.
For example, what if the beneficiary is not married, has no children, and
is the child of divorced parents, the beneficiary might leave his estate to his
other surviving parent.  Here, the
child’s estate acts merely as a conduit to transfer a share of one deceased parent’s
estate over to that deceased parent’s ex spouse who otherwise would not be
entitled to any inheritance.   

solution to this problem is for the benefactor to hold his estate in further
trust for the lifetime benefit of his intended beneficiaries, who receive
distributions over their lifetimes.  That
way, when a beneficiary dies prior to receiving the entire inheritance the
remaining assets held in the trust are redirected to another beneficiary of the
benefactor’s (settlor’s) own choice.
Holding the estate in further trust solves both the unintended probate
and unintended beneficiary problems discussed above. 

an estate in further trust can also solve a third unintended consequence of a
direct distribution, one that is usually more relevant. That is creditor claims
by the beneficiary’s own creditors against the inheritance.   Assets held in a purely discretionary trust
can be protected against most types of creditor claims.   The
trustee uses the assets to purchase goods and services for the beneficiary’s sake
all without subjecting the assets to creditor judgments.

to hold one’s estate in further trust requires a case by case facts and
circumstances analysis.  The probable benefits
associated with holding the estate in further trust must outweigh the
associated costs to make this a worthwhile solution.  


“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.”