The Importance of Naming Alternate Beneficiaries in Your Estate Plan
A “will” or “trust” is an essential part of your estate plan. However, without the guidance of an experienced estate planning attorney, you may be surprised by what can happen! People tend to put their documents in storage and forget about them. This gives rise to one of the most common problems – the failure to nominate alternate beneficiaries.
The person you designate to receive all or a portion of your estate in your will or trust is known as a “beneficiary”. Your estate planning documents should always identify alternate beneficiaries. For example, if your trust indicates that upon your passing, your entire estate is to be distributed to your son, what will happen if he predeceases you?
Unintended Consequences. In the situation above, the law provides his estate will now be distributed to the grandchildren in equal shares. But what if you are estranged from the grandchildren and wouldn’t want them to inherit any portion of your estate? Unless you updated your trust to address this issue, all of your grandchildren would inherit your estate.
Possible different outcome. A bequest to a friend, as opposed to a child or grandchild, will result in a different outcome. If the friend predeceases you, the bequest lapses and is not automatically distributed to your friend’s children. Identifying an alternate beneficiary will address the situation. For example, you could indicate, “I leave one-half of my estate to my best friend Joe Johnson; however in the event Joe Johnson predeceases me, then I bequest one-half of my estate to my niece, Nancy Nice.”
Importance of the Residuary Clause. If you didn’t name an alternative and Joe predeceased you, then the entire bequest will fail. Under those circumstances, the court would look into whether you’ve included a residuary clause. If no such clause was included, then that portion of your estate to be distributed to the predeceased beneficiary would be distributed in accordance with the laws of intestate succession. As a result, a portion of your estate could ultimately be distributed to a family member that you had no desire to be included.
Periodic Review is a must. Even if you’ve named alternative beneficiaries, it’s important to periodically review your documents to ensure it isn’t time to identify a new alternate because someone has died or is no longer in your life. Creating an estate plan is a great first step to ensuring that the fruits of your hard labor will be distributed as you desire. However, it’s equally important to periodically review the plan to determine if adjustments are necessary. We recommend that you review your documents no less than every two to three years to consider whether adjustments are appropriate.
Amending your plan is generally an easy and inexpensive process. For more information about a plan review, please contact us at 702-798-4955 or info@drizinlaw.com.
Drizin Law is providing this information for educational purposes only. It should not be construed as legal advice or a legal opinion as to any specific facts or circumstances. This information is based on general principles of Nevada law at the time it was created and you should be aware laws frequently change. Moreover, the laws affecting you may differ depending on the circumstances. You should consult with a qualified attorney in your own state or jurisdiction concerning your particular situation. A review of this information does not create an attorney-client relationship.
