When the Beneficiary Dies, What Does Probate Court Do With the Money?

The laws surrounding wills and estates are very complex. While there are a number of federal tax laws regarding estates, laws about handling estates are largely the province of individual states. States can can have quite different interpretations about the way to handle specific legal issues. One such issue that crops up quite frequently is the death of the beneficiary while a will is still in probate.

Wills, Beneficiaries and Probate

A will is a legal document specifying how an individual wants her estate to be distributed after her death. A will names beneficiaries and what each is to receive, and an executor to carry out the distribution. All wills/estates, however, must pass through probate court to confirm the will and make sure all taxes and debts are paid before the estate is passed on to the beneficiaries. This process can take months or even years.

Intent of the Deceased

In most states, the intent of the deceased is the primary consideration in distributing the estate if one of the beneficiaries is deceased. In some cases there is relatively clear evidence of intent from the will or other documents, but cases where the intent is not clear often end up being adjudicated in court.

Distribution of Estate When Sole Beneficiary Dies Before Will Is Settled

Unless a will specifically states that a beneficiary must outlive a deceased for some period of time to collect an estate, if a sole beneficiary dies before a will is settled in probate court the funds from the original deceased's estate are added to the estate of the deceased beneficiary. The estate of the deceased beneficiary is handled as a separate case according to his will, or if there is no will, according to probate court and the laws of that state. In most cases, if there is no will, the funds of the deceased beneficiary go to her "heirs at law," or nearest relatives.

Distribution of Estate Per Stirpes or Per Capita

"Per stirpes" is a legal term from Latin that means "by representation." If an estate where the three children of the deceased are named as equal beneficiaries is to be distributed per stirpes, but one of the children dies before the estate is settled, the one-third share of the estate will fall "by representation" to the estate of the deceased child.

Per capita is Latin for "by total number of persons." If the estate in the example above is to be distributed per capita, the two surviving children will receive all of the proceeds of the estate, with nothing designated to the estate of the deceased third child.