What if a Beneficiary Dies First?

Of the many estate planning lessons pulled for the tragic death of Philip Seymour Hoffman in New York last month is the need to properly update your documents. Hoffman’s will was drafted nearly ten years earlier. It had not been changed to reflect his new life circumstances, particularly the birth of two more children. While his first son was left assets in trust, there was no mention of his two daughters.

This is a common problem when an estate plan is outdated. In addition, the opposite problem can also arise. Instead of failing to account for a new birth, a plan can also miss the fact that one has died. Many New York residents may have questions about what happens when someone set to inherit per the terms of a will or a trust beneficiary is not alive.

“Anti-Lapse” Statute in New York
Residents have been grappling with the issue of inheritances to deceased individuals for centuries. In the past, the general rule was always that the gift could not be given to one who was deceased. However, state law has addressed the issue by passing what is known as an “anti-lapse” statute. The rule seeks to balance the wishes of the testator or grantor with the need to pass on assets fairly.

Under the law, if the beneficiary dies while the testator is alive, then the inheritance instead goes to the deceased’s “issue” (children or grandchildren). For example, consider a will that splits everything between the testator’s two siblings (perhaps he had no children). At the time of the testator’s death, one of his siblings may have predeceased him. Per the terms of the law, the bequest to the dead sibling would not lapse. Instead, the gift would go to the sibling’s own children or grandchildren. If the sibling did not have children, then the bequest would in fact go back to the estate and likely all be given to the one surviving beneficiary.

However, there is a very important caveat to this anti-lapse rule. The law only applies to the testator’s own issue or their siblings. In other words, if a bequest is made to the testator’s friend, and the friend is not alive at the time, then the friend’s own children would not be able to take advantage of the anti-lapse statute.

Update Frequently
The complexity of these and similar issues makes it critical to update your plan frequently. All marriages, births, and divorces should trigger review. Even without those events, a check-up every few years is important to account for other life changes or legal alterations that affect one’s planning.