Vested versus Contingent Beneficiary
Course: Estate Planning
Lesson 3: Understanding Trusts and Trust Documents
Student Question:
In the example, I would think Northwestern would have a future, contingent interest, as their interest is dependent upon the death of the wife. But the feedback tells me it’s a vested interest. Do we assume death is inevitable, and therefore not a contingent-worthy contingency?
EXAMPLE:
During the life of my wife, Jane Gold, she shall receive all net income from this trust. In addition, as long as my son Stephen Gold continues to operate the family farm, my trustee is to distribute, at trustee’s discretion, such amounts of principal as may be needed to provide for the health, maintenance, and welfare of my son and his family, and for the education of his children. If any of my grandchildren seek to start their own business, the trustee may distribute to them up to $50,000, at trustee’s discretion, for such purpose.
Upon the death of my wife, this trust shall terminate and half of the principal of the trust shall be distributed to Northwestern University, with the remaining half being distributed to my son or his estate.
Instructor Response:
That’s exactly correct. Because the wife will die at some point, it’s not going to be considered based on a contingency. Think of it like this, there has to be an “if” involved. “If my son has children….” A condition must be met before the beneficiary’s interest can be considered contingent. If it’s an absolute, then it’s simply a vested interest that will go to the beneficiary in the future.
Hope that helps! Let me know if you have any questions.
