What Happens When a Beneficiary Dies Before Receiving Their Inheritance?

Explore the consequences when a beneficiary passes away before receiving their inheritance. Uncover insights into lapsed gifts, residuary clauses, and estate distribution under intestacy laws. Learn how to protect your estate distribution and ensure your wishes are fulfilled, even in unexpected situations

Liane Yong

Liane Yong

Lawyer, Managing Director

6 min read •

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

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 deceased individual 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.

These gifts together make up the deceased individual’s estate, which includes all the stuff the person who passed away owned.

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:

  • When there is a Will

    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, tragically, Sarah 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, because 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.

  • When there is no Will

    The gifts collectively which form the deceased’s estate, will be distributed under intestacy laws.

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 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 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.

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 “leftover estate.” This is critical because it guarantees that gifts that might not materialise (such as when a named beneficiary passes away before the testator), or assets not initially addressed in 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.

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.

Disclaimer: The information provided here is for general guidance and does not constitute legal advice. Please consult a lawyer to seek legal advice that is specific to your needs.
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