What Happens When A Primary Beneficiary Dies?

A thorough estate plan is crucial to protecting loved ones and providing you peace of mind. When a person creates an estate plan, they are assuming their beneficiaries will outlive them. Unfortunately, this is not always the case.

Whenever this situation happens, there are many questions that can come out of it. One of the most common questions is, “Who inherits if the beneficiary has passed away?” In this article we will set out to answer this question and define some terms along the way for you.

A beneficiary is anyone who the creator of an estate plan has named in their estate plan who will receive an inheritance from them upon their passing. Beneficiaries are a critical portion of every estate plan as they are an integral reason to creating the estate plan.

In a comprehensive estate plan, there are different types of beneficiaries – primary beneficiaries as well as contingent beneficiaries. Further, not all beneficiaries have to be individuals, or classes of individuals (i.e. grandchildren, etc.); they can also be organizations.

A primary beneficiary is the person or organization to inherit first from a trust or a will, and a contingent beneficiary is the person or organization to inherit if the primary beneficiary is predeceased. The contingent beneficiary can also be known as a “second in line” beneficiary.

What Happens to a Will or Trust When a Beneficiary Dies?

When a beneficiary of a trust or a will dies, the person who established the trust or had the will drafted should go back and amend their estate plan. Sometimes we get asked, “If a beneficiary dies, does our estate plan no longer have effect?" Although a beneficiary passing away is never planned for, a thorough estate plan should take this possibility into consideration. Further, even if the estate plan does not take this into account, the estate plan will still be in effect. It will just be modified.

When naming beneficiaries for an estate plan, there are two common paths for their inheritance that can be taken. Both paths consider the rare possibility of the beneficiary predeceasing the person who is creating the estate plan. The first way to name a beneficiary is to say their inheritance “lapses.” This means is that if the beneficiary passes away prior to the creator of the estate plan, the inheritance that was set to go to them is no longer in effect.

For example, if the person creating an estate plan had three children, the terms of the estate plan stated their inheritance were to lapse should they die prior to the creator, and the estate plan stated the children were to take equal shares of the estate, what happens if one of the children predeceases the creator? In this case, we have two living children, and they would each take a 1/2 share of the estate as their inheritance instead of a 1/3 share if their sibling had still been living.

The second way to name beneficiaries for an estate plan is to say their inheritance passes “per stirpes.” This is a Latin term and means “by branch." The easiest way to think of a per stirpes designation is this: if a beneficiary dies before you do, their share of your estate will automatically and evenly go to their descendants, their children or child. If your estate is set up to be distributed “per stirpes” and a beneficiary dies, each named, living beneficiary would receive their original portion of your estate, and any descendants of the deceased beneficiary would split that portion of the inheritance equally. If the deceased beneficiary had no descendants, that portion becomes lapsed and is split amongst other living beneficiaries.

Alternate Beneficiaries Named in the Will or Trust

Another option outside of making an inheritance pass per stirpes or having the inheritance lapse should the primary beneficiary pass away is to name alternative beneficiaries in the will or trust. This way, the creator of the estate plan can name multiple individuals in a descending order to inherit.

An example of how to do this would be to name a beneficiary, for this example John Smith, then name alternatives should John predecease. So the estate plan could say, “John Smith to inherit 1/3 of my estate, should he predecease me, Jane Smith should inherit in his place. Should Jane Smith predecease me . . . etc.” This way, the creator of the estate plan is not relying on the inheritance to lapse or be passed per stirpes to the primary beneficiary’s children or child.

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