Ada-Icon
Required

What is a Failed Testamentary Transfer and How Do I Prevent it From Happening?

What happens when gifts made in a testamentary instrument, such as a will or a trust, lapse (fail) because the beneficiary is either deceased or is deemed to be deceased (such as with an ex-spouse)?

The goal of any estate plan is to avoid “intestacy” — that is, when all or some of a person’s estate goes to their surviving heirs, and not to beneficiaries who were named in the decedent’s will or trust. After all, that was the point of having a will in the first place, wasn’t it?

However, as reported in Lake Country News’ article “Estate Planning: Failed Testamentary transfers,” things don’t always work out as planned. If the beneficiary is unable to receive the asset, the best possible situation is for the asset to go to an alternative beneficiary. That’s why every will, trust and any asset of any kind with a beneficiary designation should have an alternative or secondary beneficiary.  However, what happens when there’s no such person named?

If the deceased beneficiary was the decedent’s kin or was kin to the surviving spouse, deceased spouse or even an ex-spouse, in California a special statute called the California Anti-Lapse Statute comes into play, unless another intention is expressed in the will. Under this law, a gift to a deceased kindred beneficiary goes to the kindred beneficiary’s descendants.

The share of the asset will be divided into as many shares, as there are living members of the next generation of kin.

Here’s an example: Let’s say a father makes a gift to his beloved daughter Susan. Sadly, Susan dies before her father. She has two daughters, Dawn and Heather. There’s also a son, Phil, who has passed away, with two surviving children (who were Susan’s grandchildren).

The shares of the father’s gift to Susan is divided by a right of representation into three equal shares: one share each for both of Susan’s daughters Dawn and Heather, and one share for her son Phil, because he has two surviving children.

The share for Phil’s two kids is split equally between the two boys.

This division of assets is a statutory response to what can happen when children do not live longer than their parents.

When there is no alternative beneficiary to inherit and the Anti-Lapse statute does not apply, then the gift is subject to a residual clause. This determines how the remainder, or balance, of the assets are distributed after any specific gifts or assets and monetary gifts are made. First in line: any debts or taxes that need to be paid by the estate.

When there are no specific or monetary gifts, the residuary clause distributes the decedent’s entire estate. 

Let’s say Bob leaves his entire estate to his friend George. The Anti-Lapse statute does not apply, because Bob’s heir is not a relative. The will has a residuary clause that gives the remainder of the estate to Bob’s own children equally, even though that might not have been Bob’s intention.

While every state has different laws, this is a good example of why it is very important to update your will on a regular basis. It’s also important to have alternative or secondary heirs named as beneficiaries in your will. Life has a way of surprising us. If your will is not up to date, your assets may not go to the people you had intended.

Reference: Lake Country News (Jan. 26, 2019) “Estate Planning: Failed Testamentary transfers”

Hear From Our Clients
tes-prev
tes-next

“On the threshold of retirement, we finally decided to quit thinking we could self-prepare the requisite documents. We had previously had only a very simple will. We needed the necessary legal (including updated will) & health care docs but didn’t want to deal with the time & complication of legalese. Cindy made the process relatively painless. She took the time to explain and answer questions without trying to upsell services. We were done in 2 meetings plus the reading of emailed drafts. In addition to preparing the documents, Nelson Eldercare will be there when our adult children need advice on executing the plans we’ve put in place.So glad it’s behind us and would recommend Cindy and her helpful staff.”

- Bonnie

Cindy and her company treat their clients like family. Nelson’s offers clear, direct, and honest guidance in planning for your families security and future. No one wants to actively sit down and make these decisions, but Nelson’s makes this process seamless. I was so impressed with their willingness to answer all questions big or small. So glad I made the decision have them help my mom and dad and now me. You can’t go wrong with Nelson’s Elder Care Law.

- Hope

The very best elder law attorney and staff anyone could ever ask for! I have referred a number of clients to Cindy and she never disappoints. She is kind, caring, and extremely thorough in making sure everything is completed as it should be. I highly recommend Cindy for anyone needing lawyer services; she truly goes above and beyond for every client she helps and has had a huge impact in so many peoples’ lives. Thank you, Cindy and staff, for everything that you do- I’m so glad to know you!

- Kerri

I heard Cindy’s presentation at a Senior Luncheon at my church, and was very impressed. She helped my daughter and me understand many aspects of elder law. Josh has also been very helpful in my planning to enter an independent living situation . I have told many friends about them.

- Charlotte

Cindy and the Nelson Elder Care Law team are trustworthy and helpful. They are the experts in elder care law. At Leaf Cremation, we entrust our families to the care of the Nelson team when their services are needed.

- Pierce