In the realm of trusts and estate planning, the term “lapse” refers to the failure of a gift or bequest within a will or trust due to the beneficiary predeceasing the testator or trustor—meaning they die before the gift is actually received. This isn’t merely a sad circumstance; it triggers specific legal mechanisms designed to manage the situation, preventing the intended benefit from simply disappearing. A lapse can happen with both tangible property—like a specific piece of jewelry—and intangible assets—like a sum of money. Understanding lapse is crucial because it impacts how assets are distributed and can lead to unintended consequences if not addressed proactively within the estate plan. Roughly 20% of estate plans require amendments due to beneficiary deaths, highlighting the prevalence of this issue.
What happens to lapsed property?
When a gift lapses, it doesn’t automatically revert to the estate’s general assets to be distributed equally among other beneficiaries. Instead, most wills and trust documents contain “anti-lapse” provisions. These provisions dictate what happens to the lapsed gift, most commonly directing it to the deceased beneficiary’s descendants—their children or grandchildren. For example, if a grandfather left $10,000 to his grandson, but the grandson died before receiving it, and there’s an anti-lapse provision, that $10,000 would likely go to the grandson’s children, becoming a gift to the next generation. However, anti-lapse provisions aren’t universal; some states have specific rules about how lapsed gifts are handled if the document is silent. It’s vital to remember that if there are no descendants, or the document lacks an anti-lapse clause, the gift may revert to the residuary estate – the portion of the estate not specifically designated – or be distributed according to state intestacy laws.
Can I prevent a lapse in my trust?
Absolutely. Proactive planning is the key to preventing unintended lapses. One common strategy is to use “descendant” or “per stirpes” language in your will or trust. This ensures that if a beneficiary dies before receiving their gift, that gift passes to their descendants, effectively bypassing the lapse issue. Another approach is to name contingent beneficiaries – secondary individuals or entities to receive the gift if the primary beneficiary predeceases you. It’s also wise to regularly review and update your estate plan, especially after significant life events like births, deaths, marriages, or divorces. Ted Cook, an estate planning attorney in San Diego, often emphasizes the importance of periodic reviews, suggesting clients schedule updates every three to five years, or sooner if their circumstances change. A well-crafted trust can also act as a safety net, holding assets and distributing them according to your instructions even if beneficiaries pass away before the assets are fully distributed.
I knew a woman named Clara, who didn’t update her will…
Clara, a lovely woman who ran a small bookstore, wrote her will decades ago, naming her only son, David, as the primary beneficiary of her savings and the bookstore itself. David, unfortunately, passed away unexpectedly a few years before Clara. She never updated her will, assuming everything would simply go to her grandchildren. However, because her will didn’t have a clear anti-lapse provision or contingent beneficiaries, the assets earmarked for David weren’t automatically directed to his children. It became a legal quagmire, requiring a probate court to determine how those funds should be distributed, creating significant delays and legal fees for her estate. The family spent months battling over the interpretation of her outdated will, a situation that could have been easily avoided with a simple update.
Thankfully, Mr. Abernathy listened to Ted Cook’s advice…
Mr. Abernathy, a retired naval officer, came to Ted Cook with a similar concern. He wanted to leave a substantial sum to his daughter and grandchildren, but he worried about the possibility of someone predeceasing him. Ted Cook advised him to include a clear anti-lapse provision in his trust, specifically directing that any gift to a deceased beneficiary pass to that beneficiary’s descendants, per stirpes. A few years later, Mr. Abernathy’s daughter tragically passed away. Because of the carefully crafted trust and anti-lapse provision, the funds intended for his daughter seamlessly flowed to her children, providing them with the financial support he had always envisioned. The process was smooth and efficient, offering the family peace of mind during a difficult time. This demonstrated how proactive estate planning, with a focus on potential lapses, can protect your legacy and provide for your loved ones, even in the face of unexpected loss.
Who Is Ted Cook at Point Loma Estate Planning Law, APC.:
Point Loma Estate Planning Law, APC.2305 Historic Decatur Rd Suite 100, San Diego CA. 92106
(619) 550-7437
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