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What happens if one of a trust's beneficiaries passes away before funds are dispersed?

Does that share go to the deceased beneficiary's family or is it redistributed to the other beneficiaries?

Mar 15, 2012 by Carlos from Elko, NV in  |  Flag
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6 votes

Hi Carlos,

One of the advantages of having a trust is that the individual setting up the trust - and leaving the funds to another person or entity - can do things with a trust structure that cannot be done with a simple will. The trust document itself creates the framework for what happens to the assets in question.

So - in the case that you mentioned - IF a beneficiary should pass away before their share of funds are dispersed - then the trust itself, if written properly, should provide the answer. In some cases, that beneficiary's share may instead be shared among the other beneficiaries that are named specifically in the trust. In other instances, if the deceased beneficiary has children or other heirs, the trust document may stipulate that the deceased beneficiary's share goes to them.

I would suggest that first you consult the trust document itself. It should be easy to navigate; most of them have a table of contents. Look for a section called "distribution of assets," or "remainder beneficiaries," or something similar. Then sit down and actually read the document. That may be the easiest and cheapest way to find the answer.

The next option you have is to seek legal counsel on the document. As each state has different laws - if you cannot find the answer within the trust itself, then you should seek the advice of an attorney licensed to practice in the state of the trust itself. The trust itself will tell you under which state's laws it was drafted.

Good luck. Trusts - while complex - are often wonderful tools for estate planning!

Jon Castle http://www.wealthguards.com

Comment   |  Flag   |  Mar 19, 2012 from Jacksonville, FL

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Carlos, The trust if properly drafted should have details of where the remaining funds should go. If you want to email me the doucment , I wudl be glad to read it and point out where you could find the answer.

Comment   |  Flag   |  Mar 15, 2012 from East Dundee, IL

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I assume from your question that either the trust is silent on your specific question, in which case you need to review the language of the trust documents carefully to determine whether the original beneficiary was an irrevocable beneficiary.

In other words, does the trustee have discretion as to how and to whom benefits are paid? If the answer is yes and no --- the original beneficiary was irrevocable and the trustee does not have discretion --- then the benefits generally flow through to the estate of the now-deceased beneficiary. You should definitely seek legal counsel on this matter, as there may be state laws or other provisions of the trust (certain trusts terminate upon the death of a beneficiary) that will affect the ultimate disposition of your question.

Best of luck.

Comment   |  Flag   |  Mar 15, 2012 from San Francisco, CA

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Carlos, by now you've reviewed the trust document language, and decisions have been made. How did it all work out? Were you satisfied with the results? Please take a minute and share any feedback that may help others in the same boat down the road.

Comment   |  Flag   |  Jan 31, 2015 from Cedar Park, TX

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It depends on what the trust says.

Comment   |  Flag   |  Mar 15, 2012 from Port Washington, NY

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