Beneficiaries You Don't Even Know

If you don’t have children, and your only family are distant relatives you don’t even know, you have more options than you might think for naming beneficiaries of your living trust estate plan.

For most people with children, naming beneficiaries of their living trust estate plan is very straightforward: if married, all to spouse, then remainder to children. If not married, all to children. 

I’m amazed at how many people who don’t have children name distant family members they don't even know as beneficiaries of their living trust estate plan.

Why is this? Is it a sense of obligation or simply a collapse of imagination?  

It seems something hardwired in human DNA makes people feel obligated to leave their estate to family - even if their only family is more than six degrees from them and Kevin Bacon. 

Many years ago, I had a client who was a widow with no children and who had a substantial estate. He asked me to write his living trust to name certain nieces and nephews as the beneficiaries of his living trust estate plan. Since then, he has called me every few years to amend his living trust to name different extended family as beneficiaries because he either had a falling out with or realized he had no relationship with the previous family beneficiaries. After several rounds of amendments, I asked him if he had a good relationship with his new beneficiaries. He said he didn't, but they were the only family he had left that he didn’t dislike. In a moment of candor, he admitted he didn’t dislike the new beneficiaries because he didn’t know them. He will probably meet them in the next two years and call me to make another amendment. 

I don't think he really wants to give his estate to his third-choice family members, but he feels compelled to do so.

Is there an unwritten rule of human nature that says you must name family as the beneficiaries of your living trust?

Sometimes, it seems people name distant family members as their living trust beneficiaries more out of a collapse of imagination than familial love.

I love the expression “collapse of imagination.” I first heard it from a pastor at the church my wife and I attended back in the day when we lived in San Francisco. The pastor introduced his two brothers and sister, who were visiting, and he told us how they were also pastors, as had been their father and grandfather. With a sheepish expression, he said, “You are probably wondering why we all became pastors. Was it a special calling or divine revelation? No," he deadpanned. “Nothing like that. Just a complete collapse of imagination.”

If you have no obvious beneficiaries for your living trust, you can always name family. You can and should name anyone you want as your beneficiaries. 

But that’s the point: you can name anyone you want. You are not limited to bloodline—especially if your only remaining family is loser Billy, your third cousin from Turlock, whom you haven’t seen since your great aunt Connie died during the Great Recession. Nothing says you must default to people you don’t know just because they appear in your family tree.

Okay, Clark, sure, I really don't want to name my loser third cousin Billy as the beneficiary of my living trust. Any suggestions? Well, you need to do what feels right for you. But here are some ideas:

• Close friends and their children: People you have a real relationship with and that you deeply care about.

• Coworkers: People you work with every day.
  
  
• Charities you care about. You’d be surprised how your planned gift can impact the cause you care about.

• Fund a scholarship at your local community college. For example, your living trust can leave a share of your estate to your local community college foundation to create a scholarship in your name to help single moms become nurses.

One of my more creative clients who has no children wants to give a portion of his estate to his alma mater and the balance divided into separate trusts for certain individuals he has known and worked with over the years, including his mechanic, coworker, neighbor, a friend’s child, and a nephew.

His trust requires that each year on the same date and at the same place, the beneficiaries must meet together. At the meeting, they will each receive their annual inheritance check and get a report on the financial condition of the inherited investment account from the trust's financial advisor. And most importantly, they must share with each other how they have used their previous annual payment to better themselves and their families. Granted, this is complicated. But it’s creative and impactful. 

The point of this article is that if you don't have children, you have many options for naming beneficiaries of your living trust. If you want to leave your estate to family members, you should. But you don't have to if you don't know them or like them. You're the boss of your estate plan, and with some extra consideration and creativity, you can have a positive impact on the individuals and organizations you know and love.