By: Stephen R. Elville – Managing Principal and Lead Attorney – Elville and Associates, P.C.
Every good estate plan (a will-based plan or trust-driven plan) should address contingencies. Some of these contingencies are basic and commonsensical, such as what happens if the individual beneficiary or charitable organization you leave property to does not survive you or no longer exists. One of the most important but least understood contingency provisions in estate planning is what estate planners refer to as the “ultimate beneficiary” or “remote contingent beneficiary” provision. This is the section or article of a will or trust that addresses what happens with the property being disposed of if nobody is living – no person for whom property was provided for and/or no organization that was designated to receive property is in existence (defunct). In other words, there has been a complete failure of beneficiaries. Now, some people still don’t get this, and that is understandable, so read on.
This remote contingent beneficiary or ultimate disposition provision is counterintuitive, hard to fathom, and so unlikely to be needed that we naturally turn away from the idea (and the pain) of even considering it. For this remote contingent beneficiary to become effective, it literally means that no one is living – no child, grandchild, or further descendant (or other beneficiary) is living and able to take the share of the property for distribution. Yes, it’s an incredibly sad and unthinkable part of estate planning, and oftentimes it is not even addressed as part of the planning. But it should be – every time. Now you may say, as many clients of mine have said, “Steve, I don’t even want to think about this”, and if so, I will say that I completely understand. But you should still address this fourth major component of most estate plans. Why? Because doing so can make you happy, potentially help others, and bring you peace of mind.
Most truly contemporary approaches to estate planning provide for some kind of standard back up clause directing where the property will go if there is a failure of beneficiaries. These types of remote contingent beneficiary designations typically direct that the property be distributed as if the person making the will or trust died single and without having executed a last will and testament – meaning that the property will be distributed according to the laws of intestacy (the state’s prescribed estate plan). Now that’s not the fun part, that’s just the default provision of most modern estate plans. But who would want that provision? I mean, really? Even though the possibility of this remote contingent beneficiary becoming effective someday is very remote, who would want to have a provision stating that they could possibly someday be deemed to have died without a will – after actually having established one?
So here’s the good news and the happy part. You don’t have to settle for such a non-descript, non-creative, and truly depressing remote contingent beneficiary. You can (and should) customize this part of your planning, and by doing so you will (in my estimation) be smarter and happier than at least seventy-five percent (75%) of those persons in the U.S. who actually engage in estate planning (about 45-50% of the population, depending on demographics). What does customizing this provision mean? Let me give you some brief examples: you leave your property to your friend(s); your church or synagogue; your favorite charity or charities; your college or university; or other disposition.
“But Steve,” you may say, “why do this when there is only the remotest possibility that none of my beneficiaries will be living and my remote contingent beneficiary will actually receive anything?” To this I say, yes, you are correct. But do not forget that in the case of a charity, religious or other institution, or your alma mater, for example, if you are inclined to include such a customized remote contingent beneficiary designation in your will or trust; and if you would be willing to let the organization or organizations in question know that you are making such a planned gift, however remote, they will be thrilled and will love you and your family for your commitment and philanthropic intent – and with your permission they will likely (1) honor you; (2) give you recognition; and (3) use your wonderful expression of giving as an example for other similar donors or potential donors, with the result that the beneficiary organization is very likely to benefit in the future from the collective results of your kindness and generosity. This is a very real, very needed, and very desired circumstance. Ask any director of planned giving at a hospital or other organization and they will tell you how thrilled and appreciative they would be if their organization was merely included in the wills or trusts of their broader community, alumni, congregation, members, etc.
So in closing, you don’t have to leave your will or trust open to a potential situation representing the antithesis of estate planning itself – intestate succession – unless there is a reason to do so. And even then, it may make sense to think through all known scenarios of intestate distribution and consider whether there are better and wiser options, such as a remote contingent beneficiary. Instead, consider customizing the ultimate or remote contingent beneficiary provision in your will or trust to beautify and solidify the last major element of your estate plan and not leave any aspect of the planning to chance. In doing so you will have successfully dealt with and handily defeated what is easily the saddest provision in the estate planning world and instead made yourself and the world at large happier and richer spiritually and mentally, with the potential for financially benefitting others in the bargain.
To speak to me about any matters related to estate and special needs planning, elder law, or estate and trust administration, feel free to reach out to me at email@example.com, or at 443-393-7696 x108.
The preceding blog is meant for education only and not meant as a substitute for legal counseling.