The longer the administration of a deceased person’s estate takes the greater the chance that a surviving beneficiary might die before receiving his or her full inheritance.
In that case, what happens to the deceased beneficiary’s undistributed inheritance?
The answer depends on a variety of factors. Let’s consider, for example, a hypothetical trust established by a mother with two children including a daughter who survives her parent but dies before receiving all of her inheritance.
If the deceased parent’s estate is held in a trust then the trust itself might hold the answer.
That is, the trust might say that the undistributed inheritance passes in any of the following ways: to the deceased daughter’s estate, as is usually the case; to an alternative beneficiary named in the parent’s trust; or to alternative beneficiaries named by the deceased daughter if allowed by the mother’s trust instrument. If the trust is silent then the remaining inheritance goes to the daughter’s estate.
What do these different possibilities mean?
First, if the remaining inheritance passes to the deceased daughters estate then a probate will be required if the gross amount exceeds $100,000. Eventually the remaining inheritance will pass to the daughter’s beneficiaries named in her will, if any.
Otherwise, if no will exists then the inheritance passes to the daughter’s heirs at law, who may or may not be persons that either the parent or the daughter wished to benefit. Naturally, in all events, the daughter’s inheritance is subject to claims by her own creditors.
Second, the trust might name an alternative beneficiary of the parent’s own choosing to receive the daughter’s undistributed inheritance.
For example, the parent’s trust might say that any undistributed amount goes to the daughter’s siblings. This would prevent the daughter from controlling who inherits her remaining share.
In the facts of the 2010 Weinberger v. Morris California appellate court decision, a mother left her entire trust estate to her surviving daughter and completely disinherited her son.
During the four year, very protracted trust administration following the mother’s death, the daughter as successor trustee neglected to distribute the assets to herself before she too died.
The mother’s trust, however, named her daughter’s fiancé as both the alternative successor trustee and the alternative beneficiary of any undistributed inheritance.
As alternative trustee the fiancé distributed everything to himself. The disinherited son naturally sued the fiancé on the basis that had the daughter distributed the trust assets to herself in a timely manner (and not unreasonably procrastinated) then he would have inherited as the heir of his sister’s own estate.
The court ruled in favor of the fiancé, however, because the trust expressly provided that if the daughter died prior to receiving her full inheritance that the undistributed assets would go to the fiancé. Otherwise, the assets would have belonged to her estate and ultimately passed to the otherwise disinherited son.
Third, the mother’s trust might give the daughter the power to designate alternative beneficiaries of her own choosing by means of a so-called “power of appointment.” Such a power would be exercisable in the manner required by the trust, typically the power holder’s will.
If the deceased parent’s estate was in probate (instead of in a trust) then the undistributed estate would have passed to the daughter’s own estate, and from there in turn to the daughter’s beneficiaries; either persons named in his will or else her heirs at law.
The lesson here is that contingency planning is necessary lest distributions go awry when a named beneficiary dies prior to the full settlement of the estate.
Dennis A. Fordham, attorney (LL.M. tax studies), is a State Bar Certified Specialist in Estate Planning, Probate and Trust Law. His office is at 55 First St., Lakeport, California. Dennis can be reached by e-mail at This email address is being protected from spambots. You need JavaScript enabled to view it. or by phone at 707-263-3235.
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