What If a Beneficiary Dies Before Receiving an Inheritance?

Estate plans are designed to distribute assets according to the wishes of the deceased. However, complications arise when a named beneficiary dies before receiving their inheritance. Depending on the terms of the will, the existence of a contingent beneficiary and state probate laws, the inheritance may be reassigned, redirected, or absorbed back into the estate. Beck, Lenox & Stolzer Estate Planning and Elder Law attorneys do their best to advise clients on naming contingent beneficiaries whenever possible.

Factors that Determine What Happens to Inheritance

Many well-prepared estate plans account for the possibility of a beneficiary predeceasing the testator (the person creating the will). These plans typically include contingent beneficiaries, who receive the inheritance if the primary beneficiary is no longer alive.

1. Does the Will or Trust Have a Contingency Plan?

For example, if a will states:
“I leave my home to my son, John, but if he predeceases me, the home shall pass to my granddaughter, Sarah.”

In this case, Sarah, the contingent beneficiary, would inherit the home. The inheritance may follow default legal rules if no contingent beneficiary is named.

2. The Role of Anti-Lapse Laws

Many states have anti-lapse statutes that automatically redirect an inheritance to the deceased beneficiary’s descendants if no alternate beneficiary is named. These laws prevent an inheritance from becoming part of the residual estate.

For instance, if a father leaves an inheritance to his son, but the son dies before him, an anti-lapse statute may ensure the son’s children receive the inheritance instead. However, these laws typically apply only to direct family members, such as children or siblings, and may not cover more distant relatives or unrelated beneficiaries.

3. How Trusts Handle a Beneficiary’s Death

If an inheritance is placed in a trust, the trust document will govern what happens when a beneficiary dies. Many trusts name successor beneficiaries to take over the deceased beneficiary’s share.

For example, in a revocable living trust, assets may be divided among multiple children, with instructions that if one child dies, their share passes to their own children (the grantor’s grandchildren). If no successor beneficiary is named, the assets may be distributed according to the trust’s default terms or state law.

4. What Happens If No Contingent Beneficiary Exists?

If a deceased beneficiary was the sole heir and no contingent beneficiary is named, the inheritance may return to the estate’s residual beneficiaries – those who inherit any remaining assets after specific bequests are made. If no such beneficiaries exist, assets are typically distributed according to intestacy laws, which vary by state.

Under intestacy laws, assets are generally distributed to the deceased’s closest living relatives, such as spouses, children, or siblings. The estate may eventually become property of the state if no heirs can be located.

5. Special Considerations for Spouses and Joint Ownership

• Jointly Owned Property with Survivorship Rights: This property type automatically transfers to the surviving co-owner if one owner dies. This often applies to real estate, bank accounts, or investments held as joint tenants.
• Community Property Laws: In certain states, these laws may influence how a deceased spouse’s assets are distributed. If the deceased beneficiary was a spouse, their estate share may follow marital property laws.

Steps Executors Should Take If a Beneficiary Dies

If a named beneficiary passes away before receiving their inheritance, the estate executor must:

1. Review the will or trust to determine if a contingent beneficiary is named.
2. Check state anti-lapse laws to see if the deceased beneficiary’s children or heirs inherit their share.
3. Identify residual beneficiaries if no direct heirs are listed.
4. Distribute the inheritance accordingly, either to another named beneficiary or through intestate succession.
5. Consult a probate attorney if the estate’s distribution remains unclear or disputed.

How to Prevent Issues in Your Estate Plan

To avoid complications when a beneficiary dies before receiving their inheritance, consider these estate planning best practices:

• Regularly update your will or trust to reflect changes in family dynamics.
• Name contingent beneficiaries for all major assets to ensure a clear inheritance path.
• Use a trust to create structured distributions that automatically account for beneficiary changes.
• Review state laws to understand how anti-lapse statutes and intestacy rules may impact estate distribution.

Ensuring a Smooth Transition

An estate plan should be flexible enough to adapt to life’s uncertainties, including the unexpected passing of a beneficiary. By including clear contingencies and understanding inheritance laws, you can ensure that assets pass efficiently to the intended heirs without unnecessary legal challenges.

Key Takeaways

• Contingent Beneficiaries Matter: Naming backup beneficiaries in a will or trust ensures assets are passed on without confusion.
• State Laws Impact Distribution: Anti-lapse statutes may transfer an inheritance to a deceased beneficiary’s descendants.
• Trusts Can Simplify Transfers: Many trusts include successor beneficiaries to prevent probate complications.
• Executor Responsibilities: If a beneficiary dies, the executor must review legal documents and distribute assets accordingly.
• Regular Estate Plan Updates: Reviewing and updating estate plans periodically prevents legal disputes and ensures clear asset distribution.

If you need the assistance of an estate or probate attorney, we are here to help. Schedule a free phone consultation with one of our attorneys.

Reference: SmartAsset (June 21, 2023) “What Happens to an Inheritance If a Beneficiary Has Died?“