What Happens If My Beneficiary Dies Before Me?
When planning for death, most people assume they will die before their beneficiaries (e.g., their spouse, children, and grandchildren). While these assumptions are often well-founded, they do not always come to pass. Sometimes a beneficiary of an estate or trust dies before the person leaving the inheritance. If this has happened to you, you may be wondering what is next. How does this event impact your original plans? The truth is, it depends on a number of factors. Lawyers call this scenario having a predeceased beneficiary.
If you have a predeceased beneficiary, you must review your estate planning to see what accommodations, if any, exist. The review of, and any updates to, your estate planning documents are critical to ensuring your assets are distributed as you would like. The details of your plan should outline who gets your property and what happens in the case of a predeceased beneficiary. Understanding what your documents say and who is named as beneficiary or owner of your accounts is crucial. Failure to address a predeceased beneficiary in your plan could result in the state deciding the fate of your accounts and property, which may not serve your purposes and can ultimately leave your remaining beneficiaries sorting through a legal nightmare.
The most common scenarios regarding predeceased beneficiaries are that
- your estate planning documents are silent on the issue, or
- your estate planning documents name contingent beneficiaries.
There are important considerations to keep in mind in either instance.
Estate Planning Documents are Silent
An estate planning document is silent on the issue of predeceased beneficiaries if no contingent beneficiaries are identified. A contingent beneficiary is a backup, secondary beneficiary who receives an account or piece of property if the first beneficiary, known as the primary beneficiary, dies before you do. If no contingent beneficiaries are named, the gift in question is cancelled and the accounts and property will be considered part of your general estate and distributed according to other language in your Will through the legal process known as probate. In other words, the beneficiary’s portion is absorbed back into the estate and becomes part of the leftover or residuary estate. This cancellation can be problematic if the beneficiary has descendants who you would like to receive that portion of the inheritance.
Example: Adam has a daughter named Becky and Becky has three children. Adam’s will states that Becky will inherit Adam’s prized antique collection. If Becky dies before Adam, and if Becky’s children are not named as contingent beneficiaries, this could result in Becky’s children missing out on this gift.
Estate Planning Documents Name a Contingent Beneficiary
If your will or trust specifically names a contingent beneficiary, the result is fairly straightforward. The individual identified will inherit the beneficiary’s portion. However, if someone you have named in your estate planning documents has died, it is important to review your documents to be sure the contingent beneficiary named still reflects your current wishes.
The language of your estate planning documents should dictate how beneficiaries and their shares are to be treated. In most instances, it is prudent to revise your estate planning documents so that they accurately reflect your current wishes. Having up-to-date estate planning documents helps ensure that your wishes are clearly communicated to the people that will be involved in administering your estate, saving time, money, and stress for your loved ones during a difficult time.
We Can Help
It is critical to ensure that your planning is flexible enough to accommodate for the many changes that occur in life and death. If you need help reviewing your documents to make sure your goals will be carried out as you would expect, schedule an appointment with our office. We can help you plan for the various life events that come your way.