For Jacksonville residents who have been married or in a longstanding relationship, it’s almost certain your initial beneficiary will be your spouse or partner. If you have children, it’s likely an easy decision to make them contingent or successor beneficiaries to your estate. More often than not, children inherit equally, explains the article “PLANNING AHEAD: The problems we have naming contingent beneficiaries” from The Mercury.

To avoid conflict, parents often decide to name children equally, even if they’d prefer a greater share to go to one child over another, usually because of a greater need. This is, of course, a matter of individual preference.

However, as you move down the line in naming a successor or contingent beneficiaries, you may encounter some unexpected stumbling blocks or challenges with the people you choose.

Protecting Fragile Beneficiaries

Certain beneficiaries are what Jacksonville Estate Planning Attorney Bill O’Leary, Esq. describes as fragile because they need a little extra care or thoughtfulness in the planning. He provides an overview of fragile beneficiaries are in his video titled “How to Plan for a ‘Fragile’ Beneficiary.” Those individuals might include:

Minor children
Loved ones with a disability or special needs
Those who are easily influenced by others
Those who need incentives to encourage or discourage certain behaviors

Using a Trust in the Estate Plan to Protect Fragile Beneficiaries

If there is a beneficiary who is disabled, whether a child, grandchild or more distant relative, or even a spouse, their public benefits or financial help from the government may be put at risk if they receive an inheritance outright. If the disabled individual is receiving Medicaid or other government assistance, an inheritance could cause this person to become ineligible for local, state, or federal government benefits. An estate planning attorney with knowledge of special needs planning will help you understand how to help your loved one without risking their benefits.

In order to ensure that your disabled loved one continues to receive public benefits while also preserving an inheritance for them, a supplemental needs trust or a special needs trust will hold the money that they would receive upon your death and be preserved separately from the person’s primary income. Then the trust can be managed separately by a trustee who will provide distributions of the trust money to take care of your disabled loved one while still allowing them to qualify for public benefits. Read more about special needs trusts in our article, Special Needs Trusts 101: The Basics.

Choosing a Trustee and Ensuring the Use of Funds Matches Your Wishes

Another issue in naming successor and contingent beneficiaries is the choice of a trustee or manager to handle funds if a beneficiary cannot receive benefits directly. A grandparent will sometimes be reluctant to name a son-in-law or a daughter-in-law as trustees for minors if their daughter or son predeceases and the inheritance is intended for a minor or disabled grandchildren. The grandparents may be concerned about how the funds will be used or how well or poorly the person has handled financial matters in the past.

The same concern may be at issue for a child. A trust can be structured with specific parameters for a grandchild regarding the use of funds. If a supplemental needs trust is established, the trustee must understand clearly what they can and cannot do.

What Happens if You Run Out of Beneficiaries to Name?

For those with small families or who live into their 90s, many family members and friends have passed before them. These seniors may be more vulnerable to scams or new “friends” whose genuine interest is in their assets. In these cases, an estate plan prepared by an experienced estate planning attorney will need to consider this when mapping out the distribution of their estate, however large or small, to follow their wishes.

If you’d like to know more about how you might plan with contingent beneficiaries in mind or specifically for a fragile beneficiary, schedule a free call with our Jacksonville estate planning team.

Reference: The Mercury (Aug. 28, 2023) “PLANNING AHEAD: The problems we have naming contingent beneficiaries”