Attorney James Jones: [00:00:00] You’ve carefully named your beneficiaries, but what happens if one of them dies before you? Most people assume the answer is obvious, but in Washington State, the law might surprise you. In this episode of Legacy Talk, we go uncover the hidden risks in outdated beneficiary designations and give you a simple three step checkup that could save your loved ones a court battle.
One overlooked detail could unravel your whole plan. Let’s make sure that doesn’t happen to you.
You are listening to the legacy talk podcast hosted by James A. Jones, attorney at law and founder of sound legacy law, PLLC in Tacoma. Attorney Jones is here to talk about how to best protect your family assets and well, pulling stories from his more than 20 years of helping families and business owners protect their assets, create their estate plans, preserve their wealth and plan for the future.
Nobody wants to think about estate planning, but life has a way of sneaking up on you and. And at any moment, [00:01:00] something unexpected could happen that will leave you regretting not having acted sooner. So join attorney James A. Jones in the Legacy Talk podcast and together learn how to plan for your future today and have peace of mind tomorrow.
Attorney James Jones: Welcome to Legacy Talk. I am your host, James Jones. On today’s show, we’re talking about the silent threat to your legacy. What happens if your beneficiary dies before you? and I wanted to talk to you about Uncle Joe. Now, joe was a retired teacher who had done all the right things. He created a will, he named his beneficiaries. He even set up a small trust for his nieces and nephews. One of his nephews, Kyle, was named to inherit a third of Joe’s estate. Years went by and Kyle got married, had kids, but tragically passed away before Uncle Joe did.
When Joe eventually passed, everyone assumed that Kyle’s share would go to his [00:02:00] children. After all, Joe would’ve wanted his great nieces and nephews to benefit, right? But that’s not what the wheel said. and that’s not what automatically happens in Washington law necessarily because Kyle wasn’t listed with a backup.
And because Joe didn’t include language like per stirpes or made it clear that Kyle’s kid should inherit if he didn’t survive. Kyle shared defaulted to the surviving beneficiaries leaving his children out entirely. His family was heartbroken, and what made it worse was that it could have been prevented with just a few small updates. This kind of thing happens more often than you think. It’s not about intent. It’s about the language that you use when you’re creating your will. And in this episode, I’ll walk you through how to make sure your plan doesn’t leave anyone behind. We’ll also look at how Washington’s statutes work and when they don’t for your benefit. Okay, so why are we talking about this today, James? Why are we talking about this as kind of a weird subject? What happens if my [00:03:00] beneficiary dies before I do. But it’s something that people don’t really think about, right? We often think, you know, we’re gonna name our kids, or we’re gonna name our siblings or somebody else friends to inherit our stuff and they’ll get it when we die. right? We’re, of course we’re gonna die before them.
We don’t necessarily think or if we do think we’re, we think, we’ll get back to it later. Right? Many people assume that their beneficiaries just survive, right? But in reality, that’s a much more common issue than you would think. Okay, so if we don’t address this possibility, it can lead to unintended beneficiaries, people that you don’t like or estranged from, it’ll lead to delays.
It’ll increase cost, probably, right? So what happens in Washington if a beneficiary dies first? There’s a statute called an anti-lapse statute in Washington, which is kind of a Obscure statute, really, that provides a safety net in certain situations, okay. And I’m gonna preface this. If you do your [00:04:00] estate planning with an attorney like me, this is not going to be an issue, okay? It’s only gonna be an issue if you do try to do it yourself or do it with someone that doesn’t know what they’re doing but we need to talk about it anyway. Okay? So if you give a gift to a relative, I. Your relative who is on the same trajectory as you, and that person dies before you, There’s nothing in the will that says what should happen. That gift typically per statute, goes to that person’s children.
Okay? But if that person in that beneficiary is not one of your qualified relatives, which means basically a relative of your grandparents, that gift lapses, which means it fails, okay?
And that kicks that gift to the residual estate, okay?
Which might be completely different than what you wanna have happen. So if you leave your kid, this is an example, right? If you leave your kid, your car, and he dies before you. that your kids kids would get that car, okay? Or if you did it to your brother and he dies before you, his kids will get the car, okay? [00:05:00] as long as your will doesn’t say something to the contrary. Okay, so there’s, we’re talking about specific requests in this situation. Okay?
And in order to have a specific bequest, you have to say something specifically in your will. So your will might say, give your car to my brother Bob. Right? And if you do your will, right? it’ll say, if Bob doesn’t survive me, give it to his kids, or give it to his wife, or give it to my brother, Chuck.
Okay. If you don’t do that, the gift may lapse, which means it would fail. okay? It wouldn’t happen. A lapsed gift is a gift to a person who dies before the testator and is not saved, right? There’s no specific clause that says what happens later. Okay? So give Bob my truck, and Bob is your friend. that gift would lapse.
That bequest would lapse and go into the residual estate. It wouldn’t go to Bob’s kids. ’cause Bob is your friend, not your brother. If Bob is your brother, his kids would get that. Okay. So we have specific bequests and [00:06:00] then we have a reary clause in your will or trust. Okay. And the refrigerate clause is basically, if I have anything else.
Give it like this, right? Give it to my kids, give it to my friends, give it to my parents, whatever, right? And so that’s basically where most of these lapse gifts fall they fall to the residual clause, which basically says, Hey, give it to my, these other beneficiaries, right? And sometimes that residual clause, some gives it to what the state determines your beneficiaries are depends. So, for example, if you make a request, like I give $10,000 to your friend, mark and Mark dies first, and you don’t even a backup. Mark is not a qualified beneficiary, so he is not covered by the statute, the anti lab statute. So that money would pass through the residual estate, right? That money, the gift, would lapse and pass to my residual estate, which means it would go to whoever you put in there.
Okay. In the, and if you didn’t put anybody in there. It would pass as the [00:07:00] state determines. Okay, so what do you do to prevent this? Okay?
The answer is name contingent beneficiaries. You should always name alternates for key gifts, right? You always want to give alternates for specific gifts, or you wanna specifically say, sometimes I’ll make a gift like, Hey, I want my car to go to Bob, but if Bob predeceases me, I want this gift elapse.
Right. I don’t want it to go to his kids. I don’t want it to go to my siblings, you know, or my wife or whatever. I want it to go with the residual estate, and I’ll tell you how that goes. Okay.
So you want have contingent beneficiaries on specific bequest Potentially. You wanna have contingent beneficiaries and contingent beneficiaries are people that get it. If the primary beneficiary, the first choice is not there. So the second and third and fourth choice, you wanna have contingent beneficiaries on your IRAs 401(k)s on your life insurance, on payable on death accounts at your bank. Because contingent beneficiaries ensure that your wishes are followed, [00:08:00] even if your first choice isn’t a available. Okay?
And so you can name multiple beneficiaries. So usually what I’ll recommend is that if you have life insurance or a 401k or something, IRAs, you would name, you know, your kids.
Or your friend and then your brother Or whatever, right? You’d name two or three tiers of people to inherit those. Okay. All right, so this is something that you may have heard about. It’s Latin, James is gonna say Latin stuff, I guess so. Okay. There’s default distributions potentially. Through using certain phrases. Okay. Per stirpes versus per capita distribution. Have you heard of this? I’m not sure. Per stirpes. You may. Most people say it’s per stirs or something like that, which is incorrect, but it’s per stirpes or per capita.
These are default distributions typically. So you could say, I give it to Bob, my brother, Bob, per stirpes, which [00:09:00] means if Bob dies, that deceased beneficiary, his share would go to his kids. Okay. Bob per stirpes means give it to his kids if he’s not around. If you said Bob per capita, it would go to the remaining beneficiaries of his same generation.
So Bob per capita basically means it would go to the rest of the beneficiaries listed, right? It wouldn’t go to that kid that beneficiary’s kids. It would go back into the pot among the other beneficiaries. So if your will says to my children, per stirpes, and your son dies before you leaving two kids, his share would go to his kids, okay? With per capita, the remaining kids of yours. Right.
Your kids would share his, his share would split it. Okay. His kids wouldn’t get anything. You can do either one. Washington doesn’t matter, doesn’t care. You can do either one, but you must specify it like you really wanna specify it. And in most cases, it’s per stirpes.
[00:10:00] I barely ever use per capita. It’s not that common. And this is an issue, right? This is why I mentioned in the beginning of this episode that you want to talk to an attorney. ’cause it typically, these kinds of things don’t happen when you talk to an attorney, but if you do it yourself or use an online will, they don’t address these kinds of issues, right? They don’t talk about lapsed gifts necessarily. They may not ask for contingent beneficiaries. And what happens if someone dies before you do, they often omit these important default languages like per stirpes or per capita, right? And if you don’t do it, then it’s gonna cause problems, right?
It’s gonna cause problems. You could even potentially leave your estate going through the intestacy laws, even though you did a will. And how do you do that, James? Like, what are you talking about, man?
You would do that potentially if you said, I want, bob share to go to his kids if he’s gone right. And he doesn’t have kids. and there’s nothing after that. That’s often, and the residual estate, [00:11:00] you know, he’s maybe part of the residual estate.
If Bob dies, he doesn’t have kids. Typically that’s gonna go according to state law because there’s no further explanation as to where it should go. Usually what we’ll do is we’ll say if Bob dies, give it to his kids. And if he doesn’t have kids, give it to the other beneficiaries listed in the will or trust that way you cover it. But if you don’t say something like that, it could go according to you with the intestacy laws. Okay, and so here’s a hypothetical scenario, right? This is a hypothetical situation. So Tom say Tom named his daughter Sarah as the sole beneficiary of his estate.
Sarah passes away a few months before Tom, but he never updates his will, which is very common. Because Sarah wasn’t survived by children, and Tom had no backup names, her gift lapsed, okay? The court distributes the estate according to Washington’s Intestacy Law. So Sarah’s his only kid. She dies there’s no other distribution in his will. And then it ends up going, according to Washington’s attest [00:12:00] law, which could go to Tom’s parents, Tom’s siblings. Or other people that he doesn’t even know, you know? And that’s not what he wanted, right? So the moral of the story, or that hypothetical, is without these contingent beneficiaries and without the clarification that you make in your plan, it may not reflect your wishes and your may, your family could be stuck navigating difficult issues in probate. Okay, so this leads us to the question of if someone does die. What do we do? Like these estate plans that we do are not set it up and forget it. There’s something you wanna make sure that you’re aware of and that you look at regularly and update and review them, right? If something dies, if some, there’s a change in life, you wanna update that at a minimum every two to five years you wanna look at that thing. And say, is my trustee still the same? Are my kids still the same? Do I really want this stuff to go this way? Is that person still able to do the job as trustee or executor, right? Or after key life [00:13:00] events, right? Like deaths or births or marriages, divorces, medical issues. maybe one of your kids is now a multimillionaire and doesn’t need the money. Maybe you give some more money to the other kids, right? So what I would do, and I’ve done this. is to create a checklist for beneficiary reviews, right? You wanna check your will or trust, you wanna check your life insurance, you wanna check your retirement accounts. One things that people don’t do is you get hired for this job and you work in this job for 10 or 20 or 30 years, and when you got hired, you put in on your 401k plan that you wanted it to go a certain way, and maybe you weren’t married or maybe you didn’t have kids, right?
And that retirement plan designation is the same 30 or 40 years later when you die. That’s gonna cause major problems with your family. And so you wanna check your retirement accounts too, you know, so the point of today’s episode is don’t let your legacy end up in the hands of chance.
Okay? Take a few minutes, review who’s named in your estate plan, [00:14:00] and whether you’ve named any backups, right? If it’s time for an update or you don’t. Know what’s gonna happen with your estate plan, if someone predeceases you call me, right? Let’s talk as they say. And that’s it. Make sure to listen to next week’s episode where we will be talking about a probate 1 0 1, a step-by-step guide. We’ll see how that goes. But I’d like to thank you for listening to today’s episode of Legacy Talk. If you like today’s episode and would like to learn more, please like and subscribe for more great content. I’ve been your host, James Jones, to your legacy.
Thank you for listening to the Legacy Talk podcast by attorney James A. Jones. If you found today’s episode helpful, we ask that you like and follow us on all major platforms so you don’t miss out on the latest episode. If you have questions for Attorney Jones, reach out at info@joneslegacylaw.com or visit our website at jones legacy law com.
Join us again next week for another [00:15:00] episode of the Legacy Talk podcast.
