What Happens if a Beneficiary Dies Before the Estate is Settled?

What happens when a beneficiary dies before the decedent's estate is settled? Our New York Estate Attorney provides the answer to this question.

What Happens if a Beneficiary Dies Before the Estate is Settled?

First we must determine did the deceased beneficiary die prior to the testator or after the testator and before the estate was settled?  This blog post will deal with a deceased beneficiary who outlived the testator but passed before the settling of an estate.  The estate planning of the deceased beneficiary working within state law and the probate code will govern the beneficiaries or alternative beneficiaries.

Distributing an estate to beneficiaries primarily requires that the beneficiaries survive the testator. So what happens when a they die after the testator but before the testator's estate is settled? 

When a beneficiary dies after the deceased but before the estate is settled the deceased beneficiary estate will be entitled to the bequest.  A survivorship period traditionally only applies when two individuals are in a simultaneous event, like a car accident. 

Anti-Lapse Statute – New York has an anti-lapse statute which provides that if the beneficiary named in a New York City decedent’s will dies before the testator the bequest is “saved” by passing to the deceased beneficiary’s children, even though the testator has not changed the will to bequeath the gift to the testator’s grandchildren.

If there is no alternative beneficiary named or the alternate has also died, the estate becomes a '''lapsed'' or ''failed'' gift. In this case, the estate will go to any of the following parties:

• The residuary beneficiary named in the will
• The descendants of the primary beneficiary. This is governed by New York's ''anti-lapse'' law. 
• The heirs of the testator under the law of the State of New York. In this case, the estate will be treated as though no will was left behind.

The residuary beneficiary

The residuary estate of a decedent is everything that is left after specific bequests have been made to their respective beneficiaries and all taxes and debts paid. Whatever is left of the estate is usually passed to whoever is named as the residuary beneficiary in the will. The language in the will goes something like:

"…I leave the remainder of my estate including personal and real property to my wife… (or …daughter …or friend's daughter) …''

If the residuary beneficiary is dead or the will did not have a residuary clause, the residuary estate will be distributed as per state intestacy laws (as if there was no will). Some wills clearly state that lapsed gifts become part of the residuary estate (everything that isn't left specifically to another named beneficiary). If so, then the gift passes to the residuary beneficiary.

But many wills do not define the residuary estate this way. In that situation, if the alternate beneficiary is not available (or none was named), look to see whether or not your state's anti-lapse law applies.

The descendants of the primary beneficiary

New York has an anti-lapse law. Under this law, if the primary beneficiary is deceased and there is no alternative beneficiary named in the will, the estate will pass to the heir(s) of the primary beneficiary.

The law generally applies only if the deceased beneficiary was either the testator's grandparent or a direct descendant of a grandparent. Direct descendants include parents, siblings, niece or nephew, uncle or aunt, and so forth. It also applies if the deceased beneficiary left children of his or her own.

The anti-lapse law does not cover beneficiaries who are not related to the testator by blood. This means that a spouse is not covered. So if the testator leaves everything in his will to his surviving spouse without naming an alternative beneficiary and she dies before the estate is settled, the estate will be disposed of per state intestacy laws. Thus, even if the wife had had children from a previous marriage, they will not inherit the estate - though they are her descendants. 

What if the estate goes to a ''Class'' of beneficiaries?

Sometimes, a testator leaves his entire estate or a specific inheritance to a group of people together such as all his siblings or all his children. In this case, if one of the beneficiaries dies before the estate is settled, the estate will still be distributed among the beneficiaries as instructed. The difference will just be the ratio of distribution between them.

So, if the decedent had five siblings who he had named as class beneficiaries, each of them would have had a 20% share of the estate. Upon the death of one of the beneficiaries, however, the surviving beneficiaries would each receive a 25% share as against the initial 20% share.