What Happens to Your Estate Plan If a Beneficiary Dies?

Part of creating an estate plan is confronting the idea of mortality. However, many people focus only on their own passing and do not stop to consider that other people may pass on first. That can pose problems for your estate plan if your designated beneficiary dies. 

It’s good practice to design your estate plan with flexibility for these situations. With proper preparation, you can draft a plan that is resilient in the face of the death of a beneficiary. Here’s what you need to know about the importance of your beneficiaries, how their deaths can affect the plan overall, and how to prepare a robust plan that ensures your wishes are carried out.

What Is a Beneficiary?

Beneficiaries are the parties for whom your estate plan provides. They include your heirs and any other party that will receive an inheritance from you upon your passing. You can name beneficiaries in several ways. 

One of the most common is to name a specific individual to receive certain assets, such as your spouse or a particular child. However, you can also name classes of individuals, such as your children or grandchildren, or organizations, such as charities. In each case, you may outlive the individual, class of individuals, or organization you have named as a beneficiary.

The Impact on Wills and Trusts if Beneficiaries Die

Unless your will or trust states otherwise, a beneficiary’s death means their inheritance lapses or is no longer in effect. The rest of the will or trust remains active, however.

How this plays out depends on the structure of the will or trust. If the beneficiary was part of a class of individuals, they would no longer be considered when dividing assets. For example, if your liquid assets were to be divided between your three children and one passes away, your surviving children would each receive half instead of one-third of those assets. 

If the beneficiary was a specifically named individual, their inheritance would be blended with the rest of the estate. For example, if you name one child as the recipient of a home, the home would not be automatically divided between the other siblings should they pass. Instead, the house may be granted to the beneficiaries that would receive the remainder of the estate after specific bequests were made. However, this can easily lead to disputes in probate court, so it is best to avoid this situation.

Preparing Robust Estate Plans

A comprehensive estate plan should address the potential death of beneficiaries to prevent probate court disputes. The following three strategies can help you prepare for this unlikely but unfortunate possibility and ensure your wishes are carried out regardless of what the future may bring.

Name Alternate Beneficiaries

You may name alternate beneficiaries in both wills and trusts. These alternate beneficiaries will receive a specific inheritance if the primary beneficiary has predeceased you. One way to accomplish this is by stating that the inheritance passes “per stirpes,” or “by branch.” For example, if your child predeceases you, the inheritance that would go to them would be equally and automatically granted to their own descendants. However, if they have no descendants, this would lead their inheritance to lapse.

The other solution is to name specific alternate beneficiaries. For example, you may designate one child as the recipient of a particular investment account, then state, “Should he predecease me, the aforementioned funds should pass to my oldest surviving child. Should all my children predecease me, the funds should pass to the Red Cross.” This ensures that there is no doubt about who you intend to receive the assets.

Create a Common Disaster Distribution Plan

In rare cases, all primary and alternate beneficiaries may predecease you. You may create a clause that explains what to do in this specific and unfortunate situation. The most common solutions are to pass on the entire estate to a long-standing organization such as a charity or religious institution. Otherwise, you may declare that your assets should be granted to your “heirs at law,” or closest living relatives. The executor of your estate will be tasked with finding those relatives and equally distributing your assets among them. 

Revise Your Estate Plan Regularly

The simplest way to avoid the complications of a deceased beneficiary is to revise your wills and trusts regularly. You can remove deceased beneficiaries and name new primary and alternative beneficiaries, reducing the risk of probate disputes after you pass.

Build Your Estate Plan With the Future in Mind

Building a comprehensive estate plan is the best way to ensure your final wishes are respected. At The Dayton Law Firm, P.C., we are prepared to help you draft a plan that considers all possibilities. Call (408) 758-5750 or message us online to learn how we can assist you in creating or revising your estate plan today.