In creating a will or trust, a person may make specific bequests of property to a chosen beneficiary. But what happens if that beneficiary does not survive the person making the bequest? A well-drafted will or trust must anticipate such contingencies. Either the document should name an alternate beneficiary, or it should be made clear that the gift lapses and passes as part of the person’s residuary (leftover) estate.
A recent California Court of Appeals decision illustrates the confusion that may arise when the intended beneficiary of a gift dies before the giver. This case is only provided as an example and should not be viewed as a comprehensive statement of California law on this issue.
Dilworth v. Tiernan
Magnolia Austin died in 2012. Her only living relatives were several nieces and nephews. Austin created a living trust in 1990, which she amended in 2002. Under the amended trust, after paying all funeral and other death-related expenses, the successor trustee was to divide the remainder of the trust assets into two shares. One share would go to one of Austin’s niece, the other to her friend, Virginia Sexton. The trust went on to say that if the niece died before Austin, that first share would go to Sexton. And if Sexton died before Austin, the second share would be divided among Sexton’s living heirs.
Both Sexton and the niece died before Austin. This left unresolved the question of what to do with the first share intended for the niece. In 2013, another of Austin’s nieces, Rosemae Dilworth, filed a petition with a probate judge, seeking a declaration the first share passed to her aunt’s estate. In effect, the share would pass under California’s intestacy law, which meant Dilworth and the other surviving nephews and nieces would split the share originally left to the deceased niece.
Marilyn Tiernan, Virginia Sexton’s daughter, opposed Dilworth’s petition. Tiernan argued Austin’s entire estate passed to Sexton’s heirs under the terms of the trust. The probate court ruled for Tiernan and the Court of Appeals upheld that decision.
As the Court of Appeals explained, the key issue was whether the division of the trust into shares functioned as a residuary clause intended to make a complete distribution of the trust assets. Dilworth argued it did not; she said the two shares were separate gifts. Tiernan and the courts disagreed. The Court of Appeals said the trust language clearly manifested Austin’s intent to make a final distribution. The courts have a duty to interpret wills and trusts, where possible, to avoid having any part of an estate pass under intestacy.
Planning Ahead
The whole point of a will or trust is to prevent litigation over your property after your death. Sometimes this cannot be avoided. But proper drafting of estate planning documents is always an essential first step. That is why you should always consult an experienced California estate planning attorney before making a will or trust. Contact the Law Office of Scott C. Soady in San Diego today.