Laughing heirs, or charity?

It’s important to choose your beneficiaries wisely and not allow your estate planning attorney to make basic assumptions about who they will be. Attorneys will ask who you’d like to inherit your property and most will ask you to name a second beneficiary in case the first dies before you do. But what comes after that?

Typically the children of the original beneficiaries take your assets if the original beneficiaries die before you. But many estate planners don’t go beyond that. In fact, all trusts or wills have a concluding provision at the very end of the disposition section that goes something like this “if none of the parties mentioned in the sections above survive the settlor(s) then the entire trust (or will) shall be distributed equally to the settlors or decedent’s heirs.” But, who are the heirs?

One’s heir can vary different depending on the document or body of law and likely varies from state to state. Heirs cannot be determined prior to your death, because an heir needs to be alive when you die. You may not know for sure who your heirs are – until it’s too late!

Your heirs are likely to be your parents if they are alive, your children, your brothers and/or sisters, your aunts and/or uncles, cousins, nieces, nephews, or other family members. Some people are close to their extended family members. Others may have met them once or twice or may not like them at all! Many of my clients aren’t thrilled about the prospect of someone they don’t know or like receiving their property.

“Laughing heirs” are family members who you’ve never met or don’t like, but who inherit your assets anyway. This clever term means someone who isn’t dealing with the grief of your dying but is someone who is going to get your money and assets.  Not a bad deal for them, but likely not what you intended.

Because every estate plan needs some concluding provisions to account for what happens if all your beneficiaries die before you, you need to name someone who will always be around. There’s always an heir out there who is still alive to take your money – a fourth cousin six times removed or a great-great aunt in Italy – so this is why most estate planners use the term heirs in the concluding provision. But is there a better way?

To assure that you decide who gets your assets, you have to think of someone or some organization that will be around forever, or at least for a very long time. A charitable organization is a perfect choice for that. Charitable organizations will always be around, so there’s less of a chance your assets will go somewhere you didn’t intend. You can name one or more charities, you can name local branches of national charities, and you can even restrict how the charities use your money.

You can even give the trustee or executor the power to name the charity or charities after you die. If you decide to do this, it is wise to offer the executor direction about the type of charitable purpose you’d like to support such as children, the sick or the needy. Regardless of your choice, you might decide that supporting a local charity in any way is better than a laughing heir getting all your money!

Eric S. Gullotta, JD, CPA, MS (Tax) focuses on estate planning and taxation law. His office is located at 232 West Napa Street, Suite A, in Sonoma. Contact him at 938.7234 or visit Gullottalaw.com.