What Happens When a Beneficiary Passes Away Before Receiving an Inheritance?

Estate planning is meant to ensure assets are passed on according to the wishes of the deceased. But what happens if a beneficiary dies before they can receive their inheritance? The outcome depends on the terms of the will or trust, whether a contingent beneficiary is named, and the probate laws in the relevant state. In some cases, the inheritance is reassigned to another individual, while in others, it may revert to the estate.

Key Factors That Determine Where the Inheritance Goes

A well-structured estate plan anticipates the possibility of a beneficiary passing away before the testator (the person who created the will). This is why many wills and trusts include contingent beneficiaries—backup recipients who inherit in such situations.

1. Does the Estate Plan Name a Backup Beneficiary?

For example, a will might say:
"I leave my home to my son, John, but if he predeceases me, the home shall pass to my granddaughter, Sarah."

In this case, Sarah would inherit the home. However, if no contingent beneficiary is listed, the inheritance may be redirected according to state probate laws.

2. Anti-Lapse Laws and Family Heirs

Many states have anti-lapse statutes that prevent an inheritance from being absorbed back into the estate if a beneficiary passes away. These laws typically transfer the inheritance to the deceased beneficiary’s direct descendants, such as their children.

For instance, if a father leaves his estate to his son, but the son dies first, anti-lapse laws may ensure the son’s children receive the inheritance instead. However, these laws generally only apply to close family members and may not extend to friends, distant relatives, or unrelated individuals.

3. How Trusts Handle a Beneficiary’s Death

If a trust is in place, its terms will determine what happens to the inheritance. Many trusts include successor beneficiaries who automatically inherit when a primary beneficiary passes away.

For example, in a revocable living trust, a parent might leave assets to their children, specifying that if one child passes away, their portion will go to their own children (the grantor’s grandchildren). If no successor is named, the trust’s default terms or state probate laws will determine distribution.

4. What Happens If No Backup Beneficiary Exists?

If a deceased beneficiary was the sole heir and no contingent beneficiary was named, the inheritance typically falls to residual beneficiaries—those designated to receive any remaining assets. If no residual beneficiaries exist, state intestacy laws come into play.

Intestacy laws prioritize a deceased’s closest relatives, such as spouses, children, or siblings. If no heirs are found, the estate may eventually be escheated to the state, meaning the government claims the assets.

5. Special Cases: Spouses and Jointly Owned Property

• Joint Ownership with Survivorship Rights: If property is jointly owned with survivorship rights, it automatically passes to the surviving co-owner upon death. This is common with real estate, bank accounts, and investment accounts.
• Community Property States: In certain states, marital property laws dictate how a deceased spouse’s assets are distributed, which can impact inheritance distribution when a spouse passes away.

Executor Responsibilities When a Beneficiary Dies

If a named beneficiary dies before receiving their inheritance, the estate’s executor should:

• Review the will or trust to determine if a contingent beneficiary is named.
• Check state anti-lapse laws to see if the deceased beneficiary’s children or heirs will inherit their share.
• Identify residual beneficiaries if no direct heirs are listed.
• Distribute assets accordingly, either to another beneficiary or through intestate succession.
• Consult a probate attorney if legal uncertainties or disputes arise.

How to Prevent Inheritance Issues in Your Estate Plan

To minimize complications if a beneficiary passes away, consider these best practices:

- Regularly update your will or trust to reflect changes in family circumstances.
-Name contingent beneficiaries to provide a clear inheritance plan.
-Use trusts to allow structured distributions and successor beneficiaries.
-Understand state inheritance laws, including anti-lapse statutes and intestacy rules.

Ensuring a Smooth Estate Plan

An estate plan should be flexible enough to adapt to life’s uncertainties—including the unexpected passing of a beneficiary. By naming backup beneficiaries and staying informed about inheritance laws, you can ensure that assets are distributed smoothly and according to your wishes.

Estate planning isn’t just about distributing assets—it’s about ensuring your loved ones are taken care of, no matter what happens. At The Werner Law Firm, our experienced estate planning attorneys can help you build a strong, adaptable estate plan that protects your wishes and your heirs. Whether you need to update your will, establish a trust, or navigate probate laws, we’re here to guide you every step of the way.

If you have any questions, schedule a free appointment with us through our online appointment page.

You can also read reviews from some of the hundreds of clients we have helped over the years.

Reference: SmartAsset (June 21, 2023) "What Happens to an Inheritance If a Beneficiary Has Died?"