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Are All Beneficiaries Created Equal?

By: Matthew S. Dana, JD, LLM, CPA, CLU, ChFC

It seems like a simple question and certainly is the most common question an Estate Planning Lawyer will ask his client. “Who do you want to inherit your estate when you die?” This is an easy question for most people, “I want my spouse and my children to inherit.” But, I think that more thought and consideration is warranted. 

Perhaps a reflection of your life and the people who have influenced you the most. As I have watched many clients struggle with this question it prompted me to assume my counselor role and offer insight and suggestions. After 34 years of advising clients, it finally came to me that there are three main tiers to your beneficiary selection.

Tier 1

The first tier of beneficiaries I call “Thank You Notes”. Most of us are familiar with the “Thank You Notes” from the Tonight Show starring Jimmy Fallon each week as he checks his inbox. I believe that a Last Will and Testament should be much more than just a passage of assets to our “heirs at law”. I think it should be more of a reflection of your life and a chance to acknowledge those and thank those who helped us along the way. You might ask yourself:

  • Who was there to give good advice or direction throughout my life? 
  • Who was there that helped me through an extremely difficult time or situation. 

Typically, a “Thank You Note” should be a specific dollar amount, not a percentage of the estate. Maybe $10,000 to a church leader, or perhaps $25,000 to a nephew or cousin who was particularly close to you. I have many nephews who I have hunted with over the years and have developed a special relationship. 

To me, we should be saying “thank you” to these people for being a part of your life. Maybe it is a charity. Maybe we had a relative die of cancer and we want to say “thank you” to the American Cancer Society for trying to find a cure. Or perhaps it is just somebody in need that you perceive to have a particular talent or trade that could be expanded with your assistance. 

Whatever the need, or the reason, or the person, just take the time to reflect on your life and your life experiences and take the time to say “thank you” to this group. It isn’t about the money. It is purely about the recognition of them being an important part of your life.

Perhaps in this first tier, you have a provision in your Trust or your Will that refers to an Attached Schedule A, and you list your “thank you notes” on this attached schedule. That way you as the donor, can change these gifts at any time by simply creating and signing a new Schedule A and attaching it to your Will and your Trust. You would not have to hire a lawyer to modify your estate plan every time you want to add more “thank you” beneficiaries to your Estate Plan.

Tier 2

The second tier of beneficiaries would be people that were more significant in your life than are tier 1 beneficiaries, but, are not as significant as your wife or your kids. This group may warrant a percentage of your estate. Certainly, more than a “thank you”. Many times, this second tier is a group of charities. Perhaps you state that 10% of your estate will go to your church. Or maybe it is 25% of your estate divided among 3 of your closest charities. 

You may also have some extended family members that are part of your second tier. Maybe you help raise a grandson. Maybe you have a group of nieces or nephews that you are particularly close to who may have treated you better in life than perhaps your children have. Typically, you want this group to have a percentage of the estate such that if your assets go up in value then this group gets more. If your assets go down in value, then they get less.

This second tier of beneficiaries could also be taken care of with an attached schedule, perhaps a Schedule B, with Schedule A being for your “thank you” beneficiaries. Again, the Schedule B could be adjusted and amended by you without having to pay an attorney to update your Trust.

Tier 3

The last group of beneficiaries is Tier 3 beneficiaries. These are the people who are most significant to you and to your life. In most cases, it is your spouse and your children. In some cases, it may also include your grandchildren. In my case, a significant percentage of my estate will pass to my grandchildren instead of my children. 

I have spent a lifetime providing for my children. Now it is time to help with the 3rd generation. These are the people that are your closest relatives and loved ones. These are the ones that have brought you the most joy in life. These are the ones that perhaps got you out of bed every day and motivated you to be a better person and work harder. They inspired you. They were there in time of need and tragedy. They held your hand during times of sorrow and disappointment.

This third-tier beneficiary should also be rewarded in percentages to enjoy the upward fluctuation in your estate. And perhaps this is the group that you build in some protections and motivations. Maybe you provide some incentives or rewards for achievements in life. These are the people that have played a major role in your life. These are the people that you now want to bless their lives, not ruin it. Wealth not properly structured can be damaging. Wealth properly structured can bless the lives of many people.

So, now what?

In conclusion, use your Will or Trust to send a message to your loved ones. Not just a legal document that transfers wealth. Sit down and take the time to reflect on your life, your successes, and your failures. Who was beside you in these times of need? Who brought you joy? Who showed you compassion or forgiveness at a time you needed it the most? 

You will find the experience of setting up a Will or Trust much more enjoyable and memorable if you take the extra time to sit back and reflect on your life. Use this document as the last statement coming from you to those you love. Send a message of thankfulness and gratitude to those who have helped you along the way. We all receive joy in giving presents and gifts during the holidays. I know you can receive this same joy by making provisions for these Three Tiers of Beneficiaries.

I think we should use our Will and our Trust as a “thank you note” and send a positive message to those we love. Let’s take this time to use this as a positive and bless the lives of those around us, and who have enriched our lives. I am often reminded of the scene in the movie Lonesome Dove, when Captain Call says to his lifelong friend Captain Augustus McCrae, two Texas Ranchers, “Dammit Woodrow, it isn’t dying I’m talking about, it’s living.” To this point a Will isn’t about dying, it is a message to the living. 

Take the appropriate time to reflect on these Three Tiers before you put your John Hancock on the legal document. You will experience the joy that I am talking about knowing that your hard-earned assets will continue to bless and enrich lives. Making your Will or Trust should not be dreadful. We should find the same joy that we find in making a Christmas list for our loved ones. In the end, what message do you want to send to these people who have influenced your life? It very well could be the largest factor for positive change in their lives.

Matt Dana

The Dana name has become the symbol of a quality Estate Plan in Arizona. It has taken over 34 years to develop and continues to strive for excellence in the Estate Planning community. At its core is Estate Planning lawyer Matt Dana. [Learn more about Matt]

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