What Happens if a Beneficiary Dies?
By Attorney Truman Scarborough
All of our beneficiaries (those who inherit our estates) will someday die. Not planning for what will happen if a beneficiary dies can have unexpected and costly consequences. In this article we will examine some of the problems that may be encountered when a beneficiary dies 1] before the person who is making the gift dies, 2] after the person making the gift dies but before receiving the gift, and 3] after receiving the gift.
1] If the beneficiary dies before the person making the gift: The law prohibits us from leaving property to a deceased person. A will or trust can anticipate the demise of a beneficiary by naming an alternative. However, when there are no surviving beneficiaries the gift will lapse (go away) unless protected under Florida’s anti-lapse statutes (discussed below). When a specific gift (e.g. $10,000) lapses it becomes part of the residual estate (what is left after distributing specific bequests). If the lapsed gift is part of the residual estate, it goes back into the pot to be divided among the remaining residual beneficiaries. If all the residual beneficiaries named in the will or trust have died, the estate goes to those persons who would inherit under Florida Statutes when there is no will called intestate succession.
Florida’s Probate and Trust Codes have anti-lapse provisions. These provide that a gift will not lapse if the deceased beneficiary is a descendant of a grandparent of the person who created the will or trust. The inheritance will go to the deceased beneficiary’s lineal descendants (children, then grandchildren). If there are no direct lineal descendants, the inheritance goes to the grandparent or if deceased to the grandparents’ lineal descendants (aunts/uncles, then nieces/nephews). However, rather than relying on Florida’s Anti-Lapse Statutes, it is best to specify who will receive a gift if the primary beneficiary dies.
If all the named beneficiaries on an IRA, retirement account, transfer on death (TOD) account, payment on death (POD) account or life insurance policy have died, the funds are part of the owner’s estate, requiring probate. If a beneficiary dies it is important to name new beneficiaries.
2] If the beneficiary dies after the person making the gift but before distribution: If the beneficiary survives the person creating the will or trust but dies before receiving the gift, the gift is distributed to the deceased beneficiary’s probate estate. This will delay closing the primary estate until a probate estate is opened for the deceased beneficiary to receive the distribution. Therefore, it is important to close an estate as soon as possible.
3] If the beneficiary dies after receiving distribution: Once a beneficiary has received the inheritance, it is the beneficiary’s. When the beneficiary dies, it will be part of his/her estate. But what if you do not want it to be a part of a child’s estate? Perhaps you prefer not to have it go to the child’s spouse. A way to prevent this is to hold the child’s inheritance in trust for him/her and specify who will receive the balance upon the child’s demise. A sequence of trustees should be named who could reasonably be expected to survive the child, first to make distributions over the child’s lifetime and then at the child’s demise, make distribution of the remaining funds to the final beneficiaries.
For further information you may be interested in Attorney Truman Scarborough’s Booklet on Estate Planning in Florida. It is available without charge or obligation by calling (321) 267 – 4770. His office is located at 239 Harrison Street, Titusville, Florida.