Bequest: To Give or Leave a Gift

Estate planning consists of dividing up assets, establishing beneficiaries, and determining an executor, health care proxy, and perhaps guardian. Many people like to give gifts or money to specific people in their wills, but depending on how the gift is worded in the will and any future changes in one’s life circumstances, these gifts could raise issues that result in unintended consequences. This article looks at some of the potential pitfalls of leaving gifts in one’s last will and testament and how to avoid them.

What Is a Gift Lapse?

One common issue that needs to be addressed when gifting in one’s estate plan is the question of what happens when the beneficiary is not around to receive the gift when the testator, or creator of the will, dies. Will the gift lapse?

The question of whether a gift will lapse is determined when the will is created (assuming they have a good estate attorney that recognizes the potential issue). The testator can choose to have the gift lapse, which means that if the beneficiary is not alive at the testator’s death, then the gift does not occur. If the testator chooses not to have the gift lapse, they will choose between two types of distribution options which will determine who the new beneficiary of the gift will be: per capita and per stirpes.

Per Capita

Per capita means that if the beneficiary dies before the will is enacted, the beneficiary’s potential inheritance will not lapse, but instead be distributed to members of the same class of beneficiaries as the original intended heir. The gift will not go to the heirs of that beneficiary. For example, Let’s say that Tom has three children: Jill, Jack, and James. Tom decides to use a per capita distribution to split his assets evenly among his three children. Then his son Jack passes away before the will is enacted. Because Tom chose a per capita distribution, Jack’s part of the estate will be split between the other two surviving children, Jill and James. This means that Jack’s share will not go to his heirs, such as his children, but instead to his siblings Jill and James.

Per capita distribution is a good choice when the intended beneficiaries do not have heirs, or perhaps have heirs who the testator would not want to give their inheritance to. However, it’s important to consider the loss of inheritance to these potential beneficiaries, who in many cases may be the grandchildren of the testator. Anyone considering this method of distribution should speak with a qualified estate attorney before making such a designation in their estate plan.

Per Stirpes

Per stirpes means that if the beneficiary dies before the will is enacted, the beneficiary’s descendants will inherit the assets. Let’s revisit the same example from above. Tom decides to use a per stirpes distribution to split his assets evenly among his three children. Jack passes away before the will is enacted. Because Tom chose a per stirpes distribution, Jack’s part will go to his son and daughter, Jack Jr. and Rebecca.

Deciding which distribution is best for your situation can be difficult. As with the per capita scenario, a per stirpes designation may cause its own set of issues with members of the family or other intended beneficiaries who were expecting something different from the will than what they ultimately received. The question of how to distribute a gift in the event that the chosen beneficiary is not living at the time of the testator’s death is not something that should be taken lightly, especially if there are multiple gifts involved and many potential beneficiaries. An experienced attorney at Rosenblum Law can help guide you through the process to decide which alternative is best for you.

What if the Intended Gift No Longer Exists at Time of Death?

Decisions of how to handle a situation where the beneficiary is not living at the time of the testator’s death are one possible issue, but what happens if the gift itself is sold or destroyed before the will is enacted? When anything changes with a will, it’s important to update the will as soon as possible in order to avoid these potential issues. It’s important for the testator to get legal advice from an attorney on options to address gifts that may no longer exist. Planning ahead is the only way to prevent issues from arising.

The wording of the given gift is important in the distribution of the will. For example, let’s say Tom wants to leave his home at 123 Main Street to his daughter Jill and writes it into his will. Several years later, Tom moves to another home and eventually passes away. Jill no longer will inherit the house named in the will because Tom no longer owns it, and you cannot gift something you do not own, therefore this gift will lapse.

However, if Tom wanted Jill to inherit his house, no matter where it is at the time of his death, he could write in his will, “I give my primary residence to my daughter, Jill.” The point here is that people need to think carefully about how they word their will to avoid unintentionally denying someone of a gift they wanted to give to them.

What if You Want to Gift Something?

It is highly advisable to speak to an attorney to help with creating an estate plan. An attorney can help guide you through the process and advise on which gift-giving distribution, per capita or per stirpes, is best for your estate plan. Each person’s circumstances and wishes regarding their assets are different. At Rosenblum Law, we listen to our clients’ goals for the will and take the necessary steps to avoid potential problems that may arise. Our attorneys are highly experienced and can assist with all aspects of estate planning, including gift giving.

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