Assumptions people make about who will receive an inheritance share from their estate can sometimes fall far off the mark.

Peculiar results may occur when an intended beneficiary survives just long enough to inherit but not so long as to enjoy their inheritance.

This situation arises when a beneficiary dies during, or soon after, settling of a deceased benefactor's
estate.

Let us consider what sometimes happens to the inheritance left to a beneficiary who dies shortly after the benefactor and what can be done to avoid unwanted consequences.

One unwanted result in estate planning that may occasionally occur in the settling of a deceased benefactor's estate is that the estate of a beneficiary may be forced into a probate; even if the beneficiary's own estate without the inheritance would not otherwise have been probated.

Any share that is left to a beneficiary who dies becomes part of that beneficiary's own estate. If such inheritance pushes the total appraised value of the deceased beneficiary's own estate over the present $150,000 threshold for probate then a probate will be necessary.

One way to avoid triggering an unintended probate of a beneficiary's own estate is to name the beneficiary's own living trust as the beneficiary, instead of naming the beneficiary personally.

By transferring the inheritance to the beneficiary's own living trust the inheritance never becomes part of the deceased beneficiary's estate and avoids probate.

Once received by the trustee of the beneficiary's own trust the inheritance would be controlled and distributed by the trustee under the trust's own terms.

That is, after all legitimate debts and expenses related to the benefactor's deceased beneficiary, what remains passes to the beneficiaries of that trust.

This also can sometimes lead to another peculiarity. The fact that the inheritance is passed through and is distributed to other living beneficiaries may mean that persons whom you never wanted to benefit (or not to benefit so much) now inherit.

For example, what if the beneficiary is not married, has no children, and is the child of divorced parents, the beneficiary might leave his estate to his other surviving parent.

Here, the child's estate acts merely as a conduit to transfer a share of one deceased parent's estate over to that deceased parent's ex spouse who otherwise would not be entitled to any inheritance.

One solution to this problem is for the benefactor to hold his estate in further trust for the lifetime benefit of his intended beneficiaries, who receive distributions over their lifetimes. That way, when a beneficiary dies prior to receiving the entire inheritance the remaining assets held in the trust are redirected to another beneficiary of the benefactor's (settlor's) own choice.

Holding the estate in further trust solves both the unintended probate and unintended beneficiary problems discussed above.

Holding an estate in further trust also can solve a third unintended consequence of a direct distribution, one that is usually more relevant.

That is creditor claims by the beneficiary's own creditors against the inheritance. Assets held in a purely discretionary trust can be protected against most types of creditor claims.

The trustee uses the assets to purchase goods and services for the beneficiary's sake all without subjecting the assets to creditor judgments.

Whether to hold one's estate in further trust requires a case by case facts and circumstances analysis.  

The probable benefits associated with holding the estate in further trust must outweigh the associated costs to make this a worthwhile solution.

Dennis A. Fordham, attorney (LL.M. tax studies), is a State Bar Certified Specialist in Estate Planning, Probate and Trust Law. His office is at 55 First St., Lakeport, California. Dennis can be reached by e-mail at This email address is being protected from spambots. You need JavaScript enabled to view it. or by phone at 707-263-3235. Visit his Web site at www.dennisfordhamlaw.com .