Naming a contingent beneficiary

[Tayleysam]

What is the name of your state? Va

My husband and I recently made our will and the lawyer included a trust for our 7 year old child. He advised us to put "estate" as our contingent beneficiary on insurance and 401K forms, so payment will be made to our child before she is 18. I have researched this a little, and believe that this is the worst thing we could do, since it would put the funds into probate and open to estate taxes and fees. I also read that we should not put the trust as the contingent, due to insurance red tape regarding proof of the will and trustee. My question: Can I just put the trustee as contingent (without designation as trustee) and let her put the funds into the trust on her own? I have read that she would not have to pay any taxes on it, so I do not see any drawbacks to doing it this way. Thanks.What is the name of your state?

 

[Betty]

It is always best when a minor child is to be a beneficiary of life ins. proceeds or other assets to set up a trust with a trustee to manage the proceeds/assets for the child until they reach the age of majority. When life ins. proceeds are payable to a named bene, they pass outside the estate & avoid probate. Naming your estate as bene of life ins. proceeds subjects the money to the probate process, which can be both lenghty & costly. Life ins. proceeds are paid immediately when there is a named beneficiary other than estate. The primary bene named would get the proceeds when the insured passed away or if the primary bene predeceases the insured, the proceeds would go to the named contingent bene.

 

[BlondiePB]

Can I just put the trustee as contingent (without designation as trustee) and let her put the funds into the trust on her own?

No...furthermore even if you name the trustee (as what needs to be done on the trust document), the stuff will belong to the trustee who will be under no obligation to put the stuff in trust for your child. Trusts do not go through probate except for testamentary trusts.

 

[Tayleysam]

re:contingent beneficiary

I believe we do have a testamentary trust, and do not want the insurance money to go into the estate for this reason. If we should not name our child as contingent beneficiary, and should not name estate or the trustee, how do we get payment to our child's trust without going through probate? I thought just naming the trustee (who is my sister who I trust beyond doubt) would be best and then she can get the money fast and free of taxes and put it into the trust she sets up.

 

[Dandy Don]

You seem to be confused about the term contingent beneficiary--a contingent beneficiary is a secondary beneficiary who gets something only if the primary beneficiary is deceased. You want to name your child as a primary beneficiary of the trust and if she is still a minor, the trustee can hold the money in an account at a bank until she reaches adulthood or whatever age you want to designate her to have the money.

Trusts also pay taxes so you may want to consult with a CPA or tax accountant to find out what the trust tax liability would be so you can plan in advance for that.

Did you have an attorney's help in getting this trust drafted? If you didn't, please make sure to have an attorney review it to insure there are no serious omissions or errors and you also need to name an alternate trustee in case something happens to the first trustee.

DANDY DON IN OKLAHOMA ([email protected])

 

[candg918]

Helpful ABA reference I found helpful in understanding eatate planning.

http://www.abanet.org/publiced/practical/books/wills/home.html

 

[BlondiePB]

I believe we do have a testamentary trust, and do not want the insurance money to go into the estate for this reason. If we should not name our child as contingent beneficiary, and should not name estate or the trustee, how do we get payment to our child's trust without going through probate? I thought just naming the trustee (who is my sister who I trust beyond doubt) would be best and then she can get the money fast and free of taxes and put it into the trust she sets up.

Do you have a living revocable trust? If so, then you can open a trust account and name the contingent beneficiary the trust. If not, have one drafted with you & hubby as trustees and whoever you want to be in charge of the trust when neither of you can as successor trustee. The insurance will pay the monies directly to the trust.

Though you trust your sister beyond a doubt, death and money tend to bring out the worse in people. Just read the threads here in this and the probate section. One of the good things about testamentary trusts is that they are audited by the court for mismanagement/misappropriation of funds. Of course you can make this (court audited) a part of the trust document and have the trust document filed with the court.

 

[Tayleysam]

Thanks

Thanks you all for your advice. I have learned alot over the past week and we made some changes to our will and trust before finalizing it (which we did today).