What Does Lapse Mean for a Beneficiary in New York?

WHen a beneficiary's gift in a will lapses, it means that there is a failure of the testamentary gift, and the gift made in the will cannot take effect. Common reasons for a lapse include the beneficiary predeceasing the testator, the beneficiary being unable to accept the gift, or the gift being invalid. When a lapse occurs, the gift fails and must be distributed in an alternative manner.

The most common reason for a lapse is when the beneficiary dies before the testator. In such cases, the gift to that beneficiary lapses. However, New York has an anti-lapse statute which states that a gift would not lapse in case the beneficiary predeceases the testator and such gift would be distributed to the beneficiary's issue, unless a specific provision in the will mandates the lapse.

When a gift in the will cannot take effect because such property has already been disposed of by the testator prior to death, the gift is not lapsed, but is adeemed.

For example, if a New York testator leaves his house to his brother in his will, but the brother dies before the testator and the testator explicitly provides in the will that the gift to the brother would not go to his issue but back to the estate, then the gift to the brother lapses. However, if the testator sells the house prior to his death, yet the will still states that the house is a gift to the brother, then in this case, the gift is considered adeemed and not lapsed.

New York's Anti-Lapse Statute

Under New York's anti-lapse statute, EPTL 3-3.3, if a testator makes a gift to an issue or sibling who predeceases the testator, the gift does not lapse if the beneficiary left issue. The issue of the predeceased beneficiary will take the gift in place of their deceased parent or grandparent. For example, if a testator leaves $50,000 to his son, John, in his will, and John predeceases the testator but leaves behind two children, Sarah and Michael, the $50,000 gift will pass to Sarah and Michael in equal shares instead of lapsing. When a gift passes to a predeceased beneficiary's issue under the anti-lapse statute, the issue take the gift per stirpes, meaning that each branch of the family receives an equal share of the gift. For instance, if a testator leaves $100,000 to her daughter, Emily, and Emily predeceases the testator, leaving behind a son, James, and a daughter, Olivia, with James having two children of his own, under per stirpes distribution, James and Olivia will each receive $50,000. If James had also predeceased the testator, his two children would split his $50,000 share, receiving $25,000 each, while Olivia would still receive her $50,000 share.

Under New York's anti-lapse statute, if the testator leaves a gift to his sister, and the sister predeceases the testator leaving a son, the gift will pass to the son instead of lapsing. For example, if a testator leaves his vacation home to his sister, Margaret, in his will, and Margaret predeceases the testator, leaving behind a son, Robert, under the anti-lapse statute, Robert will inherit the vacation home in place of his mother. However, if the testator's sister predeceases the testator and does not leave any issue, the anti-lapse statute does not apply, and the gift will lapse. In this case, the lapsed gift will be distributed according to the provisions in the will or, if there are no applicable provisions, according to New York's intestacy laws. For instance, if a testator leaves $75,000 to his sister, Karen, in his will, and Karen predeceases the testator and has no children, the $75,000 gift will lapse and be distributed according to the residuary clause in the testator's will or, if there is no residuary clause, according to New York's intestacy laws.

Reasons for Lapse

The death of a beneficiary is one reason for a lapse in a testamentary gift. If the beneficiary dies before the testator, the gift to that beneficiary lapses. For example, if a testator leaves $50,000 to his sister in his will, but the sister dies two years before the testator, the gift to the sister will lapse. Similarly, if the beneficiary and testator die simultaneously, and it cannot be determined who died first, the gift lapses. An example of this would be if the testator and her husband are in a car accident and both pass away at the scene, making it impossible to determine who died first. In this case, the gift to the husband in the testator's will would lapse.

Divorce between the testator and beneficiary is another reason for a lapse. In many states, including New York, a divorce or annulment automatically revokes any gifts to the former spouse in the testator's will. For instance, if a testator leaves her entire estate to her husband in her will, but the couple later divorces, the gift to the ex-husband is automatically revoked, and the estate will be distributed as if the ex-husband had predeceased the testator. However, a legal separation does not automatically revoke gifts to the separated spouse; only a final divorce or annulment has this effect. For example, if a testator leaves her vacation home to her husband in her will, and the couple later separates but does not divorce, the gift to the husband will still be valid if the testator dies while separated.

III. What Happens to a Lapsed Gift?

When determining what happens to a lapsed gift, it is important to first look to the will for guidance. The testator may have specified what should happen to a lapsed gift in the will itself. For example, the will may state, "If any beneficiary named in this will does not survive me, I direct that the share of my estate that would have passed to that beneficiary shall instead be distributed to the XYZ Charity." Additionally, specific bequests may have contingent beneficiaries named. The testator can name a contingent beneficiary to receive a specific gift if the primary beneficiary predeceases the testator. For instance, the will may state, "I leave my antique clock to my brother, John, but if John does not survive me, I leave my antique clock to my nephew, James."

If the will does not provide specific instructions for a lapsed gift, it is necessary to look to the law for guidance. In most cases, the lapsed gift passes to the residuary beneficiary. If the will does not provide specific instructions for a lapsed gift, the gift typically falls into the residuary estate, which is distributed to the beneficiaries named to receive the residue of the estate. For example, if the testator leaves $25,000 to her friend, Sarah, but Sarah predeceases the testator, and the will does not specify what should happen to the lapsed gift, the $25,000 will be added to the residuary estate and distributed according to the terms of the will.

If there is no residuary beneficiary or the residuary beneficiary also predeceases the testator, the lapsed gift will be distributed according to the state's intestacy laws. Intestacy laws dictate how property is distributed when there is no valid will or when the will does not fully dispose of the testator's property. For example, if the testator leaves $50,000 to his brother, Michael, but Michael predeceases the testator, and the will does not have a residuary clause, the $50,000 will be distributed according to New York's intestacy laws, which may result in the money passing to the testator's closest surviving relatives.

However, anti-lapse statutes provide an exception to these general rules. Many states, including New York, have anti-lapse statutes that prevent certain gifts from lapsing when the beneficiary predeceases the testator. These statutes typically apply to gifts to close family members, such as the testator's issue or siblings. For example, if the testator leaves $100,000 to her daughter, Emily, but Emily predeceases the testator, leaving two children of her own, under New York's anti-lapse statute, the $100,000 gift may pass to Emily's children rather than lapsing and being distributed according to the will's residuary clause or intestacy laws.

V. Executor's Responsibility

To distribute property to the correct beneficiary, the executor must carefully review the will and determine which, if any, gifts have lapsed due to the beneficiary predeceasing the testator or other reasons. For example, if the executor discovers that the testator left $25,000 to his cousin, Mark, but Mark died several years before the testator, the executor must note that this gift has lapsed. For each lapsed gift, the executor must determine if there is a substitute beneficiary named in the will or if the anti-lapse statute applies. In a case where the testator left $50,000 to her brother, John, who predeceased her leaving two children, the executor would determine that under New York's anti-lapse statute, John's children will inherit the $50,000 gift in his place. Once the executor has identified the appropriate beneficiary for each gift, they must distribute the property accordingly, such as distributing the testator's antique car to the testator's grandson, as directed in the will, after confirming that the grandson survived the testator and is able to accept the gift.

Executors should seek guidance from an experienced estate attorney to ensure they are properly fulfilling their duties and complying with all legal requirements. For instance, the executor may schedule a meeting with an estate attorney to review the will, discuss any potential issues, and develop a plan for administering the estate. If the executor encounters complex legal issues, such as a will contest or a dispute over the interpretation of the will, they should seek the advice of an attorney. An example of this would be if a beneficiary challenges the validity of the will, alleging that the testator lacked mental capacity when the will was executed. In this case, the executor would consult with an attorney to determine the best course of action to defend the will and protect the estate's interests. An attorney can also help the executor navigate the legal requirements and deadlines associated with administering an estate, such as filing tax returns and providing proper notice to beneficiaries. The executor should work with an attorney to ensure that all necessary tax returns are filed correctly and on time, and that all beneficiaries receive the required notices regarding the estate administration process.