Although the Revolutionary War rid Americans of the requirement to care about the British monarchy, the news media has been abuzz with the happy news of a prince. Prince William and Kate Middleton have had their first child, who is third in line to the throne after Prince Charles and Prince William. So far, the child does not have a name, but it already has a number of things “to its name.” As heir to the throne, the child is automatically heir to the family fortune and can boast causing millions in economic activity as people scurry about collecting royal birth paraphernalia.
As those who were formerly on “baby watch” switch gears to “baby name watch,” you might consider the as yet unnamed members of your family. Your unborn children, grandchildren, and even great-grandchildren may be named as beneficiaries of your estate. Instead, they are given “class gifts.” Understanding who the unnamed beneficiaries may be in your estate plan ensures that you are not accidentally disinheriting or excluding certain individuals.
For example, a federal judge in Ohio recently interpreted as valid an out-of-state same sex marriage even though same sex marriage is not recognized in Ohio. The ruling was important because the dying spouse will be buried in his family’s plot, which is reserved for direct descendants and their spouses. Similarly, the inclusion or exclusion of step-children, foster children, and adopted children in future generations ought to be considered when drafting class gifts.
When you are creating your plan relatively early in life, it is also important to consider your yet unborn children or grandchildren. By specifically naming each beneficiary, you may exclude potential progeny who will challenge your estate plan in court in order to be included. Similarly, by planning your estate for your family solely as it exists now (e.g. without grandchildren), you will have to amend your estate plan to account for changes. The same result occurs when, for example, you name your child’s spouse as beneficiary by name rather than by class. You may end up leaving an inheritance to an ex-spouse while excluding the current spouse!
In some cases, it is wise to create a long-term trust that may last for several generations. In California, a trust may not be continued forever; they are subject to the “rule against perpetuities,” which restricts the amount of time a trust may continue in existence. However, properly drafted estate plans may nevertheless continue for a very long time where the beneficiaries will be entirely made up of people you will never meet and whose names you could not possibly know! A variety of safeguards and restrictions may be incorporated to encourage certain behaviors, such as attending college. Ultimately, no matter how long or how far you would like your estate plan to eventually reach, understanding all the implications of your choices can reduce the likelihood of misunderstandings, unintended consequences, and expensive court battles!
Estate Planning: The Price of Organization, Rewards, Gifts, and Wondrous Tax Things… FREE REPORT: This complimentary report, focused on Estate Planning, is comprised of many of Mr. Miller’s articles from his long running column for the largest regional newspaper in San Diego County. This report will guide you through the questions surrounding getting your estate planning in order.