Residual Beneficiary

By: Martha A. Churchill and Patricia E. Kefalas Dudek

When the beneficiary has died, anything left in the trust should be earmarked. The money could go to the person's siblings, just as if he or she had died intestate. Another consideration, in choosing a residual beneficiary, is the fact that certain agencies do a tremendous job helping persons with a disability. Some parents generously choose to reward such an agency by making it the residual beneficiary.

What if Freddie's cousin Janet serves as trustee, and is also named as one of the residual beneficiaries? This raises a potential conflict of interest. Janet should be spending the money on Freddie, but might theoretically feel disinclined to do so, since saving the money will benefit her (or her lineal descendents) in the end. Freddie's parents can probably avoid questions by confronting this issue openly:¹⁸

"In establishing this trust, we, the Grantors, understand that the trustee is also a residual beneficiary. We believe that any technical conflict of interest is greatly outweighed by the benefit of having Janet as trustee, because we know her to be a responsible person who truly cares about Freddie."

Other protections could be built in to the plan as the facts warrant them. For example, requiring an annual accounting to be reviewed by a third party, or local advocacy agency. Some parents write a specific letter of intent to go with the trust.

Next section:  Self-settled trusts

Martha A Churchill
Milan, Michigan.

Patricia E. Kefalas Dudek
Royal Oak, Michigan.

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