What If Your Trust Beneficiary Refuses Their Inheritance?

HomeBlogAsset & Legacy PlanningWhat If Your Trust Beneficiary Refuses Their Inheritance?

Naming a contingent beneficiary for your trust is critical for estate planning. This “second in line” beneficiary inherits if your primary beneficiary does not inherit for whatever reason. Let’s look at why an heir might refuse an inheritance and how to choose the best contingent beneficiary for your needs.

What is a Contingent Beneficiary?

A contingent beneficiary is a “second in line” beneficiary who inherits if your primary beneficiary:

  • Can’t be found
  • Declines the gift 
  • Isn’t legally able to accept it
  • Dies before you do

This designation is critical because it ensures that your assets will go to the person or people you want them to, even if something happens to your first choice. The contingent beneficiary does not inherit unless the primary heir does not inherit.

If you’re worried that your primary beneficiary might decline their inheritance, it’s essential to name a contingent beneficiary. This way, you can be sure that your assets will go to the person or people you want them to, even if something happens to your first choice.

Choosing a Contingent Beneficiary

Naming a contingent beneficiary is an integral part of estate planning. You can ensure that your assets will go to the person or people you want them to, even if something happens to your first choice. Consider these thoughts when choosing someone:

  • Make sure they’re someone you want to inherit your assets if something happens to your first choice. You need to feel good about this person inheriting in the place of the primary named beneficiary
  • Consider naming more than one contingent beneficiary. Naming more than one gives you flexibility if one of them is unable or unwilling to serve.
  • Keep in mind that you can’t name contingent trust beneficiaries in your will. Wills only distribute assets that don’t have a designated beneficiary, such as bank accounts without a payable on death designation or real estate held in your name alone. So if you want to name a contingent beneficiary for your trust, you’ll need to do it through your trust documents.

Reasons Why an Heir Might Decline an Inheritance 

When a beneficiary of your trust declines to accept their inheritance, they “disclaim” the inheritance. It is surprisingly more common than you would think. There are a few reasons why someone might decline an inheritance, including:

  • They don’t want the responsibility that comes with the asset. One example of this might be a family business with all the rights and responsibilities involved.
  • The asset is subject to estate taxes that would eat into its value
  • They have their own financial assets and don’t want the added stress of another investment to manage
  • Family strife about the inheritance is more than they want to handle
  • They receive government benefits and would become ineligible for transportation, housing, or health care insurance if they accepted a lump sum inheritance.
  • Prevent inheriting something that could cost them more than it’s worth in the long run. For example, an old family home that needs extensive repairs and has a low market value.
  • Going through a divorce or about to declare bankruptcy. Someone who doesn’t want to lose the inheritance to a legal battle
  • Want the inheritance to go to the next in line, to avoid estate taxes, or because they believe that the grantor meant to chance the trust documents but did not get around to it.

What Happens if You Don’t Name a Contingent Beneficiary?

If you don’t name a contingent beneficiary, the court will decide who gets your assets if something happens to your primary beneficiary. Your family members may have strong feelings on the subject and battle it out in court, racking up court and attorney fees. A court battle can be a long and expensive process, so it’s best to avoid it.

The court will also decide how to distribute your assets if no one else is legally entitled to them.

Summing it Up: Keep Your Legacy Going

Naming a contingent beneficiary is an essential part of estate planning. You can ensure that your assets will go to the person or people you want them to, even if something happens to your first choice.

There are a few reasons why someone might decline an inheritance, but naming a contingent beneficiary can help prevent these issues. If you don’t name a contingent beneficiary, the court will decide who gets your assets, leaving you no way to correct the situation.

We Can Help

Whether you are drawing up a trust now or need to add a contingent beneficiary, we can help. At Vail Gardner Law, our experienced asset protection and legacy planning team works with you to make a plan unique to your situation. Adding a contingent beneficiary is an intelligent way to ensure that you pass your legacy on in the way you intend. Contact us today to find out how to maximize your estate assets for your future legacy.