Estate planning should include a contingent beneficiary to address what should happen if your beneficiary dies before receiving an inheritance.
Comprehensive preparations involve contingency planning.
Because we cannot control all factors, we must account for variances in our ideal scenarios.
Such is the case with estate planning.
While estate plans are used to distribute assets to heirs, sometimes the designated beneficiary dies before the distribution can be made.
Yikes!
Depending on how the estate plan was designed, the inheritance could be redirected, reassigned, or absorbed back into the estate.
Listing a contingent beneficiary in your estate planning documents helps you control what happens to assets if a beneficiary predeceases you.
Comprehensive estate planning should consider scenarios where beneficiaries die before the individual who creates the last will and testament.
To account for this possibility, these planning documents generally name contingent beneficiaries to receive inheritances if the primary beneficiary predeceased distribution of the inheritance.
How can you tell if a contingent beneficiary is outlined in your documents?
If the last will or the trust has language akin to "I leave my house to my son, John, but if he predeceases me, the house shall pass to my granddaughter, Jane," then you have a contingent beneficiary.
If you do not have a named contingent beneficiary, then the inheritance will be distributed by default legal rules.
Many states apply anti-lapse statutes as the default legal rules for inheritances when the beneficiary predeceased the testator.
These laws automatically redirect assets to the beneficiary of the deceased individual when no alternate has been named.
These statutes aim to avoid the inheritance becoming a part of the residual estate.
In practice, it could look like a father leaving assets to his son.
If his son dies before his father, the inheritance would go to the grandchildren (i.e., the children of the predeceased son) if they were the beneficiaries of his son's estate.
Although many states have these laws, they often are restricted to direct family members rather than unrelated beneficiaries or distant relatives.
Contingent beneficiaries are handled according to the terms of the trust.
Often, the trust will name successor beneficiaries to inherit the share of the deceased beneficiary.
One example would be a trust giving equal shares to the children of the grantor but indicating the children of the deceased heir should inherit the portion of their parent who was an heir but died.
Assets may be distributed by state law or the default trust terms when no successor beneficiary is named.
When the deceased had one beneficiary as their only heir without naming a contingent beneficiary, the inheritance could be funneled to the residuary beneficiaries of the estate.
Who are residuary beneficiaries?
These individuals are set to inherit any remaining assets after specific bequests are made.
When no residuary beneficiaries exist, the inheritance will be distributed by the state intestacy laws.
Although state intestacy laws are not universal, they generally will pass to the closest living relatives of the deceased.
These would be spouses, children, or siblings.
The estate may "escheat" to the state if no living relatives are found.
Yikes!
People who own property with another individual will be subject to the terms of ownership and the state's laws.
Jointly Owned Property with Survivorship Rights.
When property is jointly owned with survivorship rights, then the share of the deceased individual will pass directly to the other owner.
When held as joint tenants, bank accounts, real estate, and investments are subject to these rules.
Community Property Laws.
Community property laws address the distribution of assets held by a deceased spouse.
When the deceased beneficiary is a spouse, marital property laws may govern their estate share.
If you are the executor of an estate, you are responsible for distributing assets to heirs.
When a beneficiary named in the will dies before an inheritance is received, you must start by reviewing the will or trust to see if you can locate a named contingent beneficiary.
If no contingent beneficiary is named, you should check state anti-lapse laws to see if the children or heirs of the deceased beneficiary would inherit the share.
If no direct heirs are listed, you should identify residual beneficiaries.
After completing these steps, you should distribute the assets to the beneficiary named or through intestate laws.
To seek clarity, you can consult with a probate attorney.
The best way to avoid chaos and confusion around the death of a beneficiary is to regularly review and update your estate planning documents to account for changes to family dynamics.
You should also name contingent beneficiaries for your major assets and use the structure of your trust to account for the death of a beneficiary automatically.
You should also review your state laws and work with an experienced estate planning attorney to understand how intestacy rules or anti-lapse laws would impact your estate.
Comprehensive estate planning should be adaptable to the uncertainties of life.
You should include clear contingencies to address the possibility of being predeceased by a beneficiary.
The goal is to have your assets pass efficiently without avoidable legal challenges.
If you want to create a comprehensive and flexible estate plan, contact our Overland Park estate planning law firm.
Having a contingent beneficiary in your estate plan allows you to provide clarity around asset distribution.
Anti-lapse laws could direct the inheritance from the deceased beneficiary to his or her heirs.
Because trusts allow for greater control over specifics of asset distribution, they can be used to name successor beneficiaries to avoid complications with probate.
The estate executor is responsible for reading through the legal documents to ensure assets are distributed according to the wishes of the decedent.
Regularly reviewing and updating your estate planning documents can reduce confusion around asset distribution.
This post is for informational purposes only and does not provide legal advice. You should contact an attorney for advice concerning any particular issue or problem. Nothing herein creates an attorney-client relationship between Harvest Law KC and the reader.
Reference: SmartAsset (June 21, 2023) "What Happens to an Inheritance If a Beneficiary Has Died?"
REMEMBER: “The choice of a lawyer is an important decision and should not be based solely upon advertisements.”
This statement is required by rule of the Supreme Court of Missouri.
