A revocable living trust can be a great way to transfer your property to your heirs without the need to go through probate. However, if your wishes aren't crystal clear in your trust document, your family members may wind up in court to settle disputes about their inheritances.
One of the important decisions you must make is assigning designations for your beneficiaries, or the people who will benefit from your trust. The Florida Trust Code has two main classes of beneficiaries, and it’s vital that you know the difference to ensure the correct person gets the right amount of your property.
What Is a Qualified Beneficiary?
Qualified beneficiaries are the first tier of beneficiaries, and take priority over other heirs in several ways. They usually include the trust creator’s spouse, children, and other named beneficiaries who will inherit property upon the trust creator''s death .
These beneficiaries have certain rights that other beneficiaries don’t have, upon the trust creator's death, including:
- The right to be notified of the existence of the trust and the identity of the trustee
- The right to request trust accounting records
- The right to a complete copy of the trust document
- The right to relevant information about the trust, including its assets, liabilities, and the details of trust administration
- The right to take part in any judicial proceeding involving the trust
What Is a Contingent Beneficiary?
Contingent beneficiaries (sometimes known as remainder or secondary beneficiaries) are the second tier of heirs. Although the Trustor may have named these individuals or entities in the trust, they may not inherit their interest for several years. They receive their trust distribution only after the primary beneficiary has passed away or is unable to accept the distribution.
For example, Grandma’s trust document might leave everything to her only surviving child. Grandma suffers a stroke and is hospitalized, during which time her remaining child passes away. Grandma passes a few months later, but she never made any updates to the trust document. The trust will control who is the next beneficiary of Grandma's trust, as the assets will be distributed to the contingent beneficiaries.
What Is a Revocable Beneficiary?
In an irrevocable trust, the beneficiaries are guaranteed their distributions because the Trustor relinquishes control once the trust takes effect. In a revocable trust, the Settlor (Trust creator) has the ability to remove or add beneficiaries at will—and revocable beneficiaries aren’t guaranteed an inheritance, since the Settlor can change their mind and disinherit them at any point.
It’s important to understand the rules surrounding revocable beneficiaries. They can be used for trusts, but also on life insurance policies, 401(k)s, and other retirement accounts. These operate on a “last man standing” basis: after your passing, the name on the line is the one who gets the inheritance. You can use your right to revoke a beneficiary wisely by:
- Making sure the change is legal. You can change a revocable beneficiary as many times as you want, but you must complete whatever steps are necessary to finalize the change in a legal manner (i.e., in the presence of two witnesses).
- Naming a backup. Most accounts have the ability to name a secondary beneficiary if the first is deceased. It may be better to name the trust as the beneficiary on your bank accounts to ensure the funds will pass according to the trust instructions.
- Updating often. You can only change revocable beneficiaries during your lifetime. If you designated a sibling as a beneficiary of your bank account decades ago, they will still legally inherit the balance after your death—even if your trust intends the entirety of the estate to go to your spouse and children. So you should review your wishes and assets with your estate planning attorney every 5-10 years to make sure your wishes would be followed upon your death.
Trust administration matters can quickly become confusing, and you’ll need an experienced trust litigation attorney to ensure your loved one’s wishes are carried out. Let the legal team at DeLoach, Hofstra & Cavonis, P.A. explain your options and help you through the next steps. Contact us today to set up a consultation and get answers to your questions.