What Happens When a Beneficiary Dies Before Receiving Their Inheritance?

Planning for the future might not always be a walk in the park, especially when it comes to writing your Will.

“What happens, for instance, if someone you’ve left something to in your Will passes away before you do?”

It’s not just a logistical issue - it touches on some deep emotional stuff for everyone involved.

In this article, we’re going to break down what happens in these scenarios, focusing on the nitty-gritty of specific and general gifts. Whether you’re setting up your first Will or tweaking an existing one, understanding these points can really help ensure that your wishes are carried out smoothly, keeping your intentions intact, no matter what life throws your way.

Getting the Terms Right

A deceased person (i.e. testator) is someone who has passed away, and their estate is subject to distribution among beneficiaries according to their Will or, in the absence of a Will, according to inheritance laws.

If you are receiving the inheritance, you are a beneficiary.

If you are the one giving the inheritance, you are the testator.

The entirety of assets owned by a testator is commonly known as an estate.

Important to bear in mind that:

Essentially, everything detailed in a Will is regarded as a gift. Whether it’s an insurance policy, a monetary bequest, or a property, each designated item or asset in a Will is legally considered a gift from the Testator to the Beneficiary.

Specific and General Gifts

Now that we know everything in a Will is considered a gift, let’s break it down into two categories and explore the differences between them:

1. Specific Gifts
2. General Gifts

Understanding these distinctions is crucial for effective estate planning and ensuring that your wishes are carried out as intended.

Specific Gifts

A specific gift refers to a particular item or a specific amount of money of the deceased’s assets and their distribution is clearly identified in the Will. This type of gift is unique and distinguishable from other assets in the estate. Examples of specific gifts include:

• A bank account to be given to a specific person.
• An insurance policy to be divided in specific shares to specific persons.
• A particular piece of jewellery, such as a diamond ring.
• A specific sum of money, like S$10,000 to a named beneficiary.
• A designated piece of real estate, such as a family home located at a specific address.
• A particular stock or shareholding in a named company.

Specific gifts are given priority in the distribution process, meaning they are allocated to the named beneficiaries before any general or residuary gifts are considered. However, if the specific item no longer exists at the time of the testator’s death (e.g., it was sold or destroyed), the gift may fail, and the beneficiary may not receive a substitute.

General Gifts

General gifts, on the other hand, are not tied to a specific item or amount. Instead, they are typically monetary gifts that are to be paid out of the general assets of the estate. Examples of general gifts include:

• A general bequest of S$50,000 to a beneficiary, without specifying the source of the funds.
• A percentage of the estate, such as 10% of the total estate value.
• A general allocation of assets, such as “all my personal belongings” or “all my stocks and bonds.”

General gifts are fulfilled after specific gifts have been distributed. If the estate lacks sufficient assets to cover all general gifts, the beneficiaries may receive a reduced amount.

Importance of Distinguishing Between Specific and General Gifts

Distinguishing between specific and general gifts is important for several reasons:

1. Clarity and Precision: Clearly identifying specific gifts helps avoid confusion and ensures that the intended items are given to the correct beneficiaries.
2. Priority in Distribution: Specific gifts are prioritised over general gifts, which can impact the overall distribution of the estate.
3. Avoiding Lapsed Gifts: Understanding the nature of the gifts can help in drafting a will that minimises the risk of gifts lapsing[jump link to lapsed gift at the bottom] due to the unavailability of specific items.

By carefully considering and categorising the gifts in your Will, you can ensure that your estate is distributed according to your wishes and that your beneficiaries receive the intended assets.

So, let’s return to the main point of this article;

What happens when a beneficiary dies before the testator?

The fate of a beneficiary who passes away before the testator hinges on their relationship with the deceased testator.

• If the beneficiary is not a child of the testator

  If the beneficiary is not a child of the testator, such as a spouse or a close friend, and he dies before the testator, his intended inheritance or gift is deemed to have “lapsed.” This means that he is no longer entitled to receive it.

• If the beneficiary is a child of the testator

  Conversely, if the beneficiary is a child of the testator, the rules change.

  According to section 26 of the Wills Act, the gift is not considered to have “lapsed” even if the intended beneficiary dies before the testator. In such cases, the inheritance passes to the children or grandchildren of the deceased beneficiary, ensuring the continuity of the testator’s intended legacy.

To better understand these dynamics, let’s explore some real-life scenarios that illustrate what constitutes a “lapsed” gift and what does not.

What is a lapsed gift?

A gift lapses when there is no final recipient to receive it.

Below are some scenarios for your clearer understanding:

• Scenarios in which a gift will “lapse”:

  If a beneficiary dies, and is not a child of the deceased - the gift will lapse.

  If a beneficiary dies, and the testator has not named a substitute beneficiary - the gift will lapse.

• Scenarios in which a gift will not “lapse”:

  If a beneficiary dies and is the testator’s child - the gift will not lapse.

  If a beneficiary dies and the testator has named a substitute beneficiary - the gift will not lapse.

  Note: The above scenarios only apply if there is a Will.

  🔎Let’s look at a real-life scenario.

Sarah, a close friend of the deceased testator, was named as a beneficiary in the Will. However, Sarah tragically passes away before the testator. Since Sarah was not a child of the deceased testator, her gift would “lapse”, meaning it would not be passed on to her heirs or beneficiaries.

🔎Now, let’s consider another scenario.

John, the eldest son of the deceased testator, was named as a beneficiary in the Will. Unfortunately, John also passes away before the testator. However, as John was the child of the deceased testator, his gift would not “lapse”. Instead, it would pass to John’s own heirs or beneficiaries, preserving the intention of the testator to provide for his children’s family even in unforeseen circumstances.

The above scenarios demonstrate how the relationship between the beneficiary and the testator determines whether a gift is considered to have lapsed or not, providing clarity on how assets are distributed according to the terms specified in the Will.

What happens when there is no Will?

. The assets which collectively form the deceased’s estate, will be distributed under the Intestate Succession Act. The Act provides rules for the distribution of movable and immovable property, ensuring that assets are allocated according to statutory guidelines.

What happens if a gift is lapsed?

If a gift lapses, such as in Sarah’s case (as discussed in the above scenario) where she’s not a child of the testator, the lapsed gift then becomes part of the deceased’s residual assets (i.e. estate).

Along with the rest of the estate, the lapsed gift is then distributed to the remaining beneficiaries as specified in the Will. This distribution is typically facilitated through the residuary clause in the Will.

How to prevent a lapsed gift?

To prevent a lapsed gift in your Will, you can appoint substitute beneficiaries. This ensures that if your primary beneficiary predeceases you or is unable to accept the inheritance, the gift will not lapse and instead be passed on to an alternate (i.e. substitute) beneficiary of your choosing.

Here’s how you can do it:

1. Appoint Substitute Beneficiaries

   In your Will, explicitly name substitute beneficiaries who will receive the gift if the primary beneficiary is unable to do so. This could be other family members, friends, or charitable organisations that align with your values.

2. Clearly Identify Your Substitutes

   Specify the order in which the substitutes should be considered if multiple substitutes are named. This ensures clarity and avoids any potential disputes among the beneficiaries.

3. Use a Residuary Clause

   Include a residuary clause in your Will that specifies how any remaining assets, including lapsed gifts, should be distributed. This clause acts as a catch-all to ensure that any assets not specifically bequeathed are distributed according to your wishes.

By taking these steps, you can ensure that your assets are distributed according to your wishes, even if unforeseen circumstances arise.

For more detailed information on appointing substitute beneficiaries and other substitute appointments like executors or guardians in your Will, you can refer to our article here.

Residuary Clause in a Will

The residuary clause in a Will acts as a safety net, ensuring that any assets not explicitly allocated to a beneficiary are gathered into what’s called the residuary property (i.e. “leftover estate”). This is critical because it guarantees that gifts that are not specifically mentioned, or assets that are acquired after the execution of the Will, are properly addressed, managed and accounted for.

For example,

Emily, a testator, creates a Will in which she designates her antique jewellery to her sister, her vintage car to her brother, and her savings account to her close friend, Peggy. However, Emily forgets to update her Will after Peggy tragically passes away before her. Since Peggy was not a child of Emily, her gift in the Will is considered to have lapsed.

In this scenario, the residuary clause in Emily’s Will ensures that Peggy’s lapsed gift, along with any other assets not specifically allocated to beneficiaries, is collected into the residual estate. Then, the residue of Emily’s estate, including Peggy’s lapsed gift, is distributed among the remaining beneficiaries according to the terms of Emily’s Will.

This ensures that all assets, including those not originally addressed, are properly managed and distributed in accordance with Emily’s wishes.

If you want to learn more about what happens to gifts or assets not covered in the Will, check out our article here.

Navigating Unforeseen Circumstances: Willcraft’s Substitution Clause & Residuary Clause

At Willcraft, we recognise the importance of considering unforeseen circumstances from preventing a gift from lapsing to ensuring that your residual assets are covered and safeguarded during estate distribution. Our Will template allows you to appoint as many substitute beneficiaries as you like and includes a robust residuary clause to ensure that no assets are left unaccounted for, even in unforeseen circumstances like a beneficiary passing away before the testator.

These clauses guarantee that specific gifts in your Will are given to the intended beneficiaries, and any remaining assets are properly accounted for.

Our interface guides you through the entire Will creation process, ensuring that every aspect of the gifts you wish to bequeath to your beneficiaries is thoroughly addressed, reflecting your intentions and providing for your loved ones effectively.

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Frequently Asked Questions

What happens when a beneficiary dies before receiving their inheritance?

If a beneficiary dies before the testator, the outcome depends on their relationship with the testator. If the beneficiary is not a child of the testator, the gift lapses. If the beneficiary is a child, the gift passes to their heirs.

What is a lapsed gift in a Will?

A lapsed gift occurs when the intended beneficiary dies before the testator and no substitute beneficiary is named. The gift then becomes part of the residuary estate.

How are assets distributed if there is no Will?

If there is no Will, the deceased’s assets are distributed according to intestacy laws, which determine the heirs based on their relationship to the deceased.

What is the residuary clause in a Will?

The residuary clause ensures that any assets not specifically allocated to a beneficiary are gathered into the residual estate and distributed according to the terms of the Will.

Can a gift in a Will be passed to someone else if the original beneficiary dies?

Yes, if the original beneficiary is a child of the testator, the gift can pass to the beneficiary’s heirs. Alternatively, a substitute beneficiary can be named in the Will.

What should I do to prevent gifts from lapsing in my Will?

To prevent gifts from lapsing, include substitute beneficiaries and a robust residuary clause in your Will to ensure all assets are properly distributed.