Choosing the Beneficiaries of a Shared Trust

After you've entered a list of the property you're going to hold in trust, the next step is to say whom you want to inherit that property. In the trust document, you and your spouse or partner must each name beneficiaries -- the family, friends or organizations who will receive your share of the trust property.

Each spouse or partner names beneficiaries separately, because each one's trust property is distributed when that spouse or partner dies. When the first spouse or partner dies, his or her trust property will be distributed to the beneficiaries he or she named. If it is left to the other spouse or partner, it stays in the trust. When the second spouse or partner dies, the rest of the property in the trust is distributed to his or her beneficiaries.

EXAMPLE: Roger and Marilyn Foster create a shared living trust. Each puts co-owned and separately owned property in the trust. When Roger dies, Marilyn takes over as sole trustee and distributes Roger's trust property to the beneficiaries he named in the trust document. Her property, including the trust property she inherits from Roger, stays in the living trust.

The beneficiaries you name in your trust document are not entitled to any trust property while both spouses or partners are alive. You can amend your trust document and change the beneficiaries any time you wish.

Rights of a spouse, partner or child. If you are married and don't plan to leave at least half of what you own to your spouse or registered domestic partner, consult a lawyer experienced in estate planning. State law may entitle your spouse or partner to claim some of the property in your living trust. In most circumstances, you don't have to leave anything to your children. But if you want to disinherit a child, you should make a will and specifically mention the child in it.

How Do You Want Your Property Distributed?

We'll ask you first whether you want to leave all your trust property to one beneficiary (or more than one, to share it all) or leave different items to different beneficiaries.

Many couples want to leave all trust property to the survivor. If you choose that option, we'll insert your spouse or partner's name (entered earlier) as beneficiary of all your trust property. All you have to do is name an alternate beneficiary, who will inherit your trust property if your spouse or partner does not survive you by five days.

If you choose to leave different items to different beneficiaries, you will be shown a list of all the property items you listed earlier. You can then name beneficiaries for them. (Alternates are discussed below.)

Your Spouse or Partner

It's common for spouses and partners to leave each other all or a substantial portion of the property in their shared trust. In a shared trust, if one grantor leaves the other trust property, it stays in the living trust when the first grantor dies.

EXAMPLE: Max and Joan make a shared basic living trust. Each leaves all his or her trust property to the other. Max dies first. All his interest in trust property stays in what is now Joan's living trust. Joan has the right to amend the trust document to name beneficiaries for the trust property that is now hers.

Children From Prior Marriages

If you have children from a prior marriage, you may well want to leave them specific items -- real estate, life insurance policy proceeds, bank accounts or whatever -- and leave everything else to your spouse or partner. Or you may want a more nuanced approach; there are many kinds of trusts that can work well in this situation and give your planning wide flexibility.

Minors or Young Adults

You can name minors (children under 18) to inherit trust property. If a beneficiary you name is a minor or a young adult who can't yet manage property without help, you can arrange for an adult to manage the trust property for the beneficiary.

Your Successor Trustee

It's very common and perfectly legal to make the person you named to be successor trustee (the person who will distribute trust property after the second grantor dies) a beneficiary as well.

EXAMPLE: Nora and Sean name their son Liam as successor trustee of their living trust. Each spouse names the other as sole beneficiary of his or her trust property, and both name Liam as alternate beneficiary. When Nora dies, her trust property goes to Sean and stays in the trust. After Sean's death, Liam, acting as trustee, will transfer ownership of the trust property to himself.

Naming More Than One Beneficiary to Share Property

You can name more than one beneficiary to share any item of trust property. Simply list their names in the box on the screen. Type the names one per line; don't join the names with an "and."

Always use the beneficiaries' actual names; don't use collective terms such as "my children." It's not always clear who is included in such descriptions. And there can be serious confusion if one of the people originally included as a group member dies before you do.

Obviously, if you name cobeneficiaries for a piece of property that can't be physically divided -- a cabin, for example -- give some thought to whether or not the beneficiaries are likely to get along. If they are incompatible, disagreements could arise over taking care of property or deciding whether or not to sell it. If they can't settle their differences, any co-owner could go to court and demand a partition -- a court-ordered division and sale -- of the property.

Cobeneficiaries will share the property equally unless you state otherwise. We'll ask you, after you enter the names, whether or not you want an item of trust property to be shared equally among the beneficiaries.

EXAMPLE: Georgia wants to leave her house to her two children, Ross and Ryan, but wants Ross to have a 75% share of it. She enters their names and then, on a later screen, enters their interests, in fractions: 3/4 for Ross and 1/4 for Ryan.

When the children inherit the property, they own it together. But Ross will be liable for 75% of the taxes and upkeep cost, and entitled to 75% of any income the house produces. If they sell it, Ross will be entitled to 75% of the proceeds.

Entering Beneficiaries' Names

When you enter a beneficiary's name, use the name by which the beneficiary is known for purposes such as a bank account or driver's license. Generally, if the name you use clearly and unambiguously identifies the person, it is sufficient.

If you name an institution (charitable or not) to inherit trust property, enter its complete name. It may be commonly known by a shortened version, which could cause confusion if there are similarly named organizations. Call to ask if you're unsure. (An institution that stands to inherit some of your money will be more than happy to help you.) Also be sure to specify if you want a branch of a national organization to receive your gift -- for example, a local chapter of the Sierra Club.

Beneficiaries for Co-Owned Trust Property

As you name your beneficiaries, remember that when it comes to property you and your spouse or partner co-own, you're naming people to receive only your share. When one of you dies, only his or her interest in the co-owned property will go to the named beneficiary.

EXAMPLE: Marcia and Perry transfer all the property they own together into their living trust. Marcia names Perry as the beneficiary of all her interest in the trust property. Perry names Marcia to inherit all of his half except his half interest in their vacation cabin, which he leaves to his son from a previous marriage, Eric. If Perry dies first, Perry's half interest in the cabin will go to Eric, who will co-own it with Marcia.

Alternate Beneficiaries

You can name an alternate beneficiary for every person you name as a primary beneficiary. The alternate will get the property left to the primary beneficiary if your first choice does not live for more than 120 hours (five days) after your death. This "survivorship" period ensures that if you and a primary beneficiary die simultaneously or almost so, the property will go to the alternate beneficiary you chose, not to the primary beneficiary's heirs.

EXAMPLE: Laura and her husband Juan Carlos make a shared living trust. Laura leaves all her trust property to Juan Carlos and names her daughter from a previous marriage as alternate beneficiary. Laura and Juan Carlos are seriously injured in a car accident; Juan Carlos dies a day after Laura does. Because Juan Carlos did not survive Laura by at least five days, the trust property he would have inherited from Laura goes to Laura's daughter instead.

If there had been no survivorship requirement, the trust property would have gone to Juan Carlos; when he died a day later, it would have gone to the beneficiaries he had named.

You don't have to name an alternate for a charitable (or other) institution you name as a beneficiary. If the institution is well established, it is probably safe to assume that it will still exist at your death.

If you don't name an alternate, and the primary beneficiary does not survive you, the property that beneficiary would have received will be distributed to the person or institution you name, in the next part of the program, as your "residuary beneficiary." One exception to this rule: If you name cobeneficiaries and don't name alternates for them, the surviving cobeneficiaries will inherit a deceased beneficiary's share.

With other beneficiaries, however, there is always the chance that the primary beneficiary may not survive you, so it's a good idea to name an alternate.

You can name more than one person or institution as alternate beneficiaries. If you do, they will share the property equally unless you state otherwise.