Updated: Nov 12, 2021
When it comes to drafting a Will, or other Estate Planning documents, most people know who they want their primary beneficiaries to be, but I have found that few people give much thought to contingent beneficiaries. A contingent beneficiary would be the beneficiary if the primary beneficiary had predeceased the testator (the person making the Will) or disclaims the gift for whatever reason. If no contingent beneficiary is named, what happens? The result may be an outcome you were trying to avoid. A thorough estate plan will consider multiple contingencies.
The beauty of a Will is that courts (generally) recognize our individual rights to dispose of our property as we wish. If Grandpa wants Sally to have the house and Johnny to have the truck upon Grandpa’s death, then that is how Grandpa’s property will be distributed. But what happens if Sally predeceases (dies before) Grandpa? Who gets the house in that case? If Grandpa does not name a contingent beneficiary two things are likely to happen – one is the court will look to the state’s intestacy laws (laws that determine distribution of assets when there is not a Will), and the second is there will likely be a dispute among surviving family members.
In Kentucky, the intestacy statutes are generally going to follow this order: spouse, children, other descendants, parents, descendants of parents (siblings, nieces, nephews, etc.), then grand-parents and descendants of grand-parents. Again, that’s a general order, there are a few nuances with specific family conditions. But for the sake of illustration, let’s consider that order. Back to Grandpa’s house, so who gets the house if Sally predeceases Grandpa. In this illustration, Sally was a grand-child, and Johnny is a grand-child and there are no other grand-children. If Sally had children, descendants, depending on the wording of the Will, they may be able to take the house in Sally’s place. If Sally had no descendants, then the court is going to look to see if Grandpa had a spouse. If Grandpa had no spouse at the time of his death, then the court will look to see if Grandpa had living children, perhaps Sally’s parents. The court will continue to follow the general bloodline path of descent until they find a living heir that can take Grandpa’s assets. Grandpa could have had more control over the recipient of his house if he would have named a contingent beneficiary.
But sometimes naming a contingent beneficiary is not enough – two or three contingencies may be needed. Let me share a story of a recent client who was a widow, no children of her own, but has four living nephews. She is close to two of the nephews, while the other two she does not really associate with for various reasons. She decided she wanted to leave her entire estate to the two nephews she was close to, and their descendants. Because both of the nephews had young children, it was logical to imagine that if one of the nephews pre-deceased their Aunt then there would be a child to take in their place. But what the Aunt had not considered was what would happen if both of the nephews and all of their descendants predeceased her. What happens then? In this case, if the two nephews she was trying to avoid were still alive at the time of the Aunt’s death, they would be in line to take by the laws of intestacy. The end result would be what the Aunt was trying to avoid in the first place – leaving her estate to the two nephews that she did not associate with, nor wish to leave anything to. While the contingency may be unlikely, it is still possible. And it is extremely important to consider anything that is possible, no matter how unlikely it is, when preparing estate documents such as Wills.
So who should be named as a contingent beneficiary? The answer is really going to depend on the family situation and the testator’s personal preference. Some folks may be perfectly fine with having the state’s intestacy laws determine the beneficiaries if any named primary beneficiaries are unavailable. Some folks may wish to leave their estate to a charity or other organization that was important to the testator – perhaps a church, school, museum, or local club of some sort. In the above example, there were no other family members. The Aunt was determined not to leave anything to the two estranged nephews so she ended up setting up a scholarship for her estate to fund in the case that her primary beneficiaries all predeceased her and were unavailable.
Beneficiaries are not the only persons where a contingency should be considered. A thorough Will or estate plan will also consider contingent Executors or Personal Administrators. In the absence of a Will, a court will generally look to the family to appoint an Executor of an estate. In the case of the Aunt, if one of her favorable nephews was named Executor but became unavailable or unwilling to perform, then the court would need to look elsewhere, which may include the estranged nephews. The risk of having one of the estranged nephews administer the estate is they have control over distributing the proceeds of the estate, and may end up distributing to themselves. So who is an appropriate contingent executor? In the absence of a reliable family member or close friend, a court is likely to appoint an institutional executor, such as a bank or law firm. This is generally what I recommend to clients as well. Again, though it may be unlikely that the first choice, or even second choice, named Executor is unavailable, it is still possible. And when it comes to your estate, you really should consider anything that is possible.
Every family is unique and every person is going to have their own wishes that they would like to see carried out upon their death. Schedule a consultation with Doug Peterson to ensure that you are constructing the right plan that works for you and considers all of your contingency scenarios. #Wills #estateplanning #northernkentuckyattorney #florencekentucky #coldspringkentucky #lawyer #kentuckylawyer