HOW MANY BENEFICIARIES ARE TOO MUCH?

Introduction
Problem
Dealing with Beneficiaries
Small Gifts to Many Charities
Determine the Purpose of the Gift
Who Bears the Brunt of the Higher Attorney Fees
Moral

Dear Mr. Miller:

Introduction: I put together my own Living Trust last year. I think I did a pretty good job, if I do say so myself. I left $5000 to each of 10 charities that I feel are important, $10,000 to each of 6 nieces and nephews, and the remainder to 13 other charities that I think do even more important work. My total net worth is approximately $300,000.

One of my nieces just gave birth to twins. Do you think I should add them for $15,000 each?

Wondering Grand Uncle

Dear Wondering:

I’m going to assume that you did a technically correct job on your Living Trust, crossed all the “T’s” and dotted all the “I’s,” that you also did a Will that dovetails with the Trust (pour over Will) and that you have appropriate powers of attorney for finances and medical care and everything else that is involved in putting together proper and appropriate estate planning documents. Let’s just focus on the beneficiaries.

Problem: One of the reasons people have Living Trusts is to cut down the time and cost of settling the estate when that person dies. You’ve sort of turned that time and cost saving paradigm on its head with 29 beneficiaries, a desire to add two more, all for a $300,000 estate.

Trust Settlement and Probate Settlement Now Similar: Way back when (1980s and early 1990s) as Trusts became popular, at least in California and at least for those who weren’t filthy rich, settling an estate with a Living Trust was much easier than going through a Court Probate Proceeding. But then some strange things started happening. One of the most significant was the state legislature’s reaction to a series of Los Angeles Times investigation articles about a few attorneys who had been writing trusts for elderly clients, naming the attorney as the successor trustee (i.e. the manager when the client died), writing in provisions that prevented challenge from the surviving family members, and naming the attorney as the beneficiary. The legislature passed a series of laws that, in effect, made settling a Living Trust estate similar to settling an estate through the Probate Court. Amongst other things, similar notifications and similar waiting times were instituted. So the time and effort for Living Trust estates began to approach that of Probate procedures. It’s still less time and still less money, but not like it used to be.

Dealing with Beneficiaries: But let’s even ignore the law changes and just focus on what you have chosen to do. Keep in mind that the attorney settling your estate will have to be dealing with 29 separate entities when you die. Each one will be entitled to an inventory of what existed at the outset; is that what you want? Each one will be entitled to periodic financial reports (accountings), each one will probably be sent a copy of the Will and Trust, each one will receive a check, each one will have to sign a receipt and release, and each one will probably have questions as to what is going on and when they can expect to get their money. And the attorney’s office will have to coordinate all this. An experienced attorney, knowing what he is about to get into is going to charge more to handle all of this extra complexity.

Small Gifts to Many Charities: And then we really have to ask if $5000 gifts to 10 charities is really worthwhile. After all, there is a cost associated with charities taking in gifts–larger is simply more cost effective than smaller. And there is a cost in the attorney having to deal with so many beneficiaries. Also, a few larger gifts just have more impact.

Determine the Purpose of the Gift: What of the 6 nieces and nephews? Is this just an “I love you gift, remember me” or is it supposed to accomplish something–college, etc. Figure out what you are trying to accomplish. Perhaps lump all of that $60,000 together and give it to the niece on behalf of her new born babies, that will have more of an impact than $10,000 each–and will simplify the settlement of the estate, i.e. there will be more left over for the residuary beneficiaries.

Who Bears the Brunt of the Higher Attorney Fees? And then the 13 charities receiving the remainder. These entities are what we call the residuary beneficiaries. That’s a touch over $14,000 each, maybe less given the complexity of settling the estate. Remember, what goes to the attorney gets taken out of what these 13 charities are going to get. Would maybe 2 charities (that’s over $90,000 each) be a better idea?

Moral: Just because you can name all those people does not mean it is a good idea. Simpler often is better!

12/27/2014