What Happens to a Predeceased Beneficiary's Share of an Estate?
When a Beneficiary Predeceases the Testator
The death of a beneficiary is one of the biggest problems that can occur when a last will and testament or a revocable living trust isn't regularly updated. When a beneficiary predeceases the testator – the person who left the will – or the trustmaker, what happens to the beneficiary's share of the estate or trust if he's no longer alive to receive it? It depends on what the will or trust says – or doesn't say – about the predeceased beneficiary's share.
When the Bequest "Lapses"
The will or trust might say, "I give 20 percent of my estate to Bob if he survives me." If Bob doesn't survive the testator or trustmaker, then Bob's share of the estate will "lapse," as they say in legalese. In other words, Bob's 20 percent share simply won't be created because he is no longer living to accept it.
So what happens to it? Because the share was never created, it typically remains in the estate to be divided among other beneficiaries. Bob's lapsed 20 percent would become part of what's called the estate's "residuary" – what's left after specific bequests are made.
In most cases, the residuary of the estate will move to other surviving beneficiaries. For example, Bob may have been given 20 percent while Sally received 40 percent and Joe received 40 percent. Because Bob's 20 percent is absorbed back into the estate, effectively making it larger than it would have been if he had been able to accept his share, Sally and Joe's shares grow.
Per Stirpes Provisions
What if the will or trust says, "I give 20 percent of my estate to Bob if he survives me. If Bob doesn't survive me, I give 20 percent of my estate to Bob's then living descendants, per stirpes." Per stirpes is more legalese that translates to "by roots." In this case, the roots are Bob's children.
If Bob isn't living but he is survived by two children, Sally and Walter, and if Bob has no deceased children, then Sally would inherit 10 percent of the estate and Walter would inherit 10 percent of the estate. They would each get a 50 percent share of Bob's share.
What if Sally is also deceased but is survived by two children, Alex and Zane? Then Alex would receive 5 percent, Zane would receive 5 percent, and Walter would receive his original 10 percent. Again, Alex and Zane would each receive 50 percent of Sally's share. Each deceased parent's share passes to his or her children in equal measure. If Sally had only one child, that child would have inherited her entire 10 percent. Because she had two children, they must share it equally.
State Intestacy Laws
What if the will or trust states, "I give 100 percent of my estate to Bob," and that's it. Nothing else is written. There are no other beneficiaries. Now what happens to Bob's share?
It will most likely pass to the deceased's closest kin based on his state's intestacy laws. These laws come into play when a decedent dies without an estate plan and the court must try to figure out what he would have wanted to do with his property had he bothered to write a will or create a living trust.
But there's no guesswork involved for the judge because each state has a prescribed list in its statutes as to who inherits when this happens. This is called "intestate succession."
The lion's share of the estate often goes to the surviving spouse with the decedent's children also getting a share. It's possible that no one else – not siblings, not the deceased's parents, and certainly not Bob's descendants – would receive anything if the deceased left a surviving spouse and children. They would most likely inherit everything provided that they had not also predeceased the testator. They'll get Bob's 100 percent, even if that's not what the deceased wanted or intended.
The Bottom Line
Confusing, isn't it? That's why I usually recommend that clients update their wills or trusts after life-changing events such as the death of a named beneficiary.
In the long run, it will save time and money and the testator's or trustmaker's true wishes will be clear and unambiguous.