Distributions From a Living Trust

Your beneficiaries are spelled out in your living trust.

There are three types of beneficiaries of a living trust:

  1. Primary Beneficiaries: these beneficiaries are designated to receive specific property.
  2. Alternate Beneficiaries: these beneficiaries receive property if the primary beneficiary dies before you.
  3. Residuary Beneficiaries: these beneficiaries receive all property not left to either the primary and alternate beneficiaries.

In general, you may choose anyone or any entity you wish to be your beneficiaries. In a community property state, you are not required to leave anything to your spouse. That is because both spouses are deemed to own half of everything earned during the marriage. However, in separate property states, your spouse may have a strong claim to set aside part of your trust if you leave him or her less than one-third to one-half of your property. In addition, minor children in many states have the right to inherit the family residence. If a court finds that the challenger has a valid claim, your trust is not entirely invalidated. The court will modify the trust to accommodate the claims of your spouse and/or children. It is relatively easy to avoid these problems if you are careful when designating your beneficiaries.

You can leave property to children through a living trust. If you desire, you can keep the property in trust and designate an adult to manage the property on behalf of the child. This is called a children's subtrust. The subtrust will end when the conditions you specify are satisfied; for example, when your child turns 21 or when she graduates from college. It is important to remember that you cannot designate a guardian for your minor children through a living trust; you should do this through a traditional will. If you want to exclude a child from your trust you should state your intention explicitly. If it appears that you unintentionally overlooked one of your children in your trust, a court may modify the trust for that child's benefit.

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