There are three types of living trust beneficiaries:
- Primary beneficiaries: Receive specific property.
- Alternate beneficiaries: Receive property if the primary
beneficiary dies before you.
- Residuary beneficiaries: Receive all property not left
to either the primary or 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.
Distributing Property to Spouses in Living Trusts
In community 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. If a court finds
the challenger has a valid claim, your trust is not entirely invalidated. The court
will simply 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.
Distributing Property to Children in Living Trusts
You can leave property to children through a living trust. Minor children
in many states have the right to inherit the family residence. 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, such as when your child turns 21
or graduates from college. If you want to exclude a child from your trust, you should
state your intention explicitly. If it appears you unintentionally overlooked one
of your children in the trust, a court may modify the trust for that child's benefit.
Designating a Guardian
It is important to remember you cannot designate a guardian for your minor
children through a living trust. You should do that through a traditional will.
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