How to Make a Living Trust for a Contingent Beneficiary
A trust is an estate planning tool used to distribute property without going through probate. There are several types of trusts, including living trusts and contingent trusts, and any trust can have both primary and contingent beneficiaries. You can simply name these beneficiaries in the trust documents.
To create a living trust with a contingent beneficiary, you can create a trust and name primary and contingent beneficiaries in your trust documents. If your goal is to withhold distributions until a certain event occurs, you'll want to create a contingent trust.
What Is a Trust?
A trust is a legal arrangement by which the settlor (the person who wants to create the trust) designates certain property to be placed in the trust for the benefit of someone else (the beneficiary). A trustee will be appointed to oversee the trust property and to distribute the trust property at the appropriate time. The trust is memorialized in writing with explicit instructions about what's in the trust, who gets the trust property and how and when the trust property will be distributed.
What Is a Trustee?
The trustee of a trust acts as a fiduciary over the trust assets and is required to take actions that are in the best interests of the beneficiaries. While it's recommended that a noninterested third party be designated as trustee, you can be the trustee of your own trust if the trust is revocable. If the trust is irrevocable, the settlor cannot act as trustee. A beneficiary can be the trustee of either type of trust, although this is less common.
What Can a Trust Contain?
Using a trust to distribute property upon death is a way of avoiding probate, as the distributions are made automatically. A trust can hold any type of property, including money, real estate or other physical property, as well as intangible property like investment accounts and intellectual property rights.
What Is a Primary Beneficiary?
A primary beneficiary of a trust is the beneficiary you designate to receive the trust property first. You can have more than one primary beneficiary, and you may designate how much each will receive from the trust. The primary beneficiary should be clearly named in the trust documents.
If there is more than one primary beneficiary, the percentages of their distributions should be outlined. For example, if you make a trust and name your daughter and your niece as beneficiaries, but you want your daughter to receive 60 percent and your niece to receive 40 percent, the document should specify these amounts.
What Is a Contingent Beneficiary?
A contingent beneficiary is a beneficiary who only gets property from the trust if the primary beneficiary's interest in the trust ends, either by the beneficiary's death or by the happening of some specified event.
For example, if the trust says that the primary beneficiary gets property until he dies, then a contingent beneficiary will get the property after the primary passes away. Or a trust may say that the primary beneficiary gets the property for the rest of his life unless he gets married, and if he gets married, it will go to a named contingent beneficiary.
What Is a Living Trust?
Trusts come in many varieties. A living trust is a trust that you create while you are alive. They can be revocable or irrevocable, and they can be contingent or noncontingent.
Transferring Property to Living Trust
The method for adding property to a trust depends upon the type of property. As an initial matter, all trust property should be named specifically and with detail in the trust documents.
Additionally, things like cars and real estate, which have documents evidencing ownership, can be transferred to a trust in the same way they're transferred to a person. You can prepare a deed transferring real estate to a trust's name, or transfer the car's title to the trust.
For bank accounts and other intangibles, change the name on the accounts to the trust's name. For tangible property without written titles, like furniture and clothing and jewelry, just designate each item in the trust documents.
Another option is to create a pour-over trust, which means that your will designates property that will go into the trust upon your death (it "pours over" into the trust).
What Is a Contingent Trust?
A contingent trust is a trust in which the designated beneficiaries will not receive any of the trust property until something specific happens. For example, the trust may require that the beneficiary doesn't get anything from the trust until he turns a certain age, graduates college, gets married or has a child, etc.
The initial beneficiaries of a contingent trust are still primary beneficiaries, as they are the first in line to receive the property. You can add contingent beneficiaries to the contingent trust so that the property will go to someone else if something happens to the primary beneficiaries.
Lady Bird Trust/Deed
A lady bird deed is not actually a trust, but it behaves as one in a way. A lady bird deed is a deed that transfers ownership of real property to someone else but allows the transferor to keep a life estate in the property.
This means that, although the property is now owned by another person, the transferor can still live there and use the property as if it's still hers, and she can do this for the rest of her life. She can mortgage the property, improve upon it, demolish it or sell it without the transferee's consent.
When she dies, the life estate is extinguished, and the transferee can use the property as he wishes.
Revocable Trusts Vs. Irrevocable Trusts
A revocable trust is a trust that you can change at any time throughout your life. You can take property in and out of the trust without any issues and make other changes as you desire, including changes to beneficiaries.
If a trust is irrevocable, however, it cannot be changed without a court order in most cases. Whether the court will permit the change will depend on things like the beneficiaries' consent and the purpose for the change. You cannot be the trustee of an irrevocable trust if you're also the settlor; however, you can be the trustee of your own revocable trust.
Living Trust Property Removal
If the living trust is a revocable trust, you can take property in and out of it at any time. You'll need to amend the trust documents. For real estate, titled vehicles, bank accounts and any other property with documents designating ownership, the trustee will have to transfer the property back to you from the trust.
If the trust is irrevocable, you'll likely need to go to court to remove property from the trust. Without a court order, irrevocable trusts generally cannot be stripped of assets.
If a trust is old, then changes in finances, property and in the relationships between the settlor and the beneficiaries may require a trip to see a judge so the trust can be updated. For example, if the trust was created 20 years ago to leave property to your children, but the house burned to the ground five years ago, you'll need to amend the trust.
- Elder Law Answers: What Is a 'Lady Bird Deed'?
- Neufeld, Kleinberg & Pinkiert, PA: Lady Bird Deed
- Hook Law Center: How to Transfer Property to a Living Trust
- FindLaw: How Do I Put Money and Other Assets in a Living Trust?
- Forbes: 9 Reasons Why You Should Consider a Living Trust
- Wealth Management: Five Ways to Modify an Irrevocable Trust
Rebecca K. McDowell is an attorney focusing on creditor and debtor law. She has a B.A. in English and a J.D. She has written finance and tax articles for Pocketsense and eHow.