Beneficiary Dies Before Closing

I recently received a frantic call from Emily. Her mother had meticulously planned her estate, naming Emily and her brother as equal beneficiaries. The probate was underway, all the “i’s” were dotted, and then Emily’s brother, unexpectedly, passed away. Emily was devastated, of course, but immediately concerned about what this meant for the estate and her inheritance. She feared the entire process would have to start over, costing her mother’s estate tens of thousands of dollars in additional legal fees. And sadly, that’s a very real risk if these situations aren’t handled correctly.

What Happens to a Beneficiary’s Share if They Die First?

When a beneficiary dies before an estate is finalized and distributed, their share doesn’t automatically revert to the other beneficiaries, nor does it necessarily get pulled back into the residuary estate (the “everything else” clause). Instead, their share becomes part of their estate. This means their executor or administrator will be the one to receive the distribution, not Emily. This can create a “probate within a probate,” significantly complicating matters and adding expense.

How Can We Avoid a Second Probate?

Fortunately, California law provides a pathway to avoid this double probate – a concept called “anti-lapse” statutes. Specifically, the Probate Code § 258 allows for the beneficiary’s share to be distributed to their descendants, per stirpes (meaning, by right of representation). In Emily’s case, if her brother had children, they would inherit his share of her mother’s estate directly. However, anti-lapse only applies if certain conditions are met. The will or trust must not state otherwise, and there’s a time limit to act. We needed to file a petition with the court to determine how to proceed.

What If There Are No Descendants?

This is where things get trickier. If the deceased beneficiary has no surviving children, spouse, or other designated heirs, their share will likely fall into the residuary estate. But even then, a judge must rule on it, and that requires time and expense. If the will or trust doesn’t address this contingency, the court will apply the default rules, which may not align with the original intent of the estate plan.

Why a Codicil is Critical – But Fragile

Emily’s mother had a codicil (an amendment to the will) addressing this specific scenario, thankfully. It included a clause stating that if a beneficiary predeceased the estate, their share should be divided equally between the surviving beneficiaries. However, the original, signed codicil was missing! This is a surprisingly common issue. A lost or improperly executed codicil is nearly as problematic as having no codicil at all. Luckily, we were able to locate a copy, and after a hearing and testimony verifying its authenticity, the court accepted it.

The CPA Advantage: Step-Up in Basis and Tax Implications

As an attorney and a CPA with over 35 years of experience, I always counsel clients about the tax ramifications of these situations. The death of a beneficiary creates a potential step-up in basis for their heirs. This means the assets they inherit are valued at the date-of-death value, potentially reducing capital gains taxes when they eventually sell them. A proper accounting of these values is critical, and that’s where my CPA expertise shines. We can minimize the tax burden on both estates, ensuring the maximum inheritance for the final beneficiaries.

What About the Final Timeline?

As you can imagine, this added complication pushed Emily’s mother’s estate past the 12-month mark for closure. Probate Code § 12220 stipulates that “…if the estate is not closed within 12 months (or 18 months if a federal tax return is involved), the executor must file a Status Report explaining the delay. Failure to do so can result in a reduction of the executor’s statutory fees.” Filing this report, and accurately documenting the reason for the delay (the death of a beneficiary), was essential to protect Emily’s rights as executor.

Showing the Money: Formal Accounting vs. Waiver

The court required a formal accounting to demonstrate how the assets were distributed, even with the complication of the deceased beneficiary. Probate Code § 10954 explains that “…preparing a formal accounting is expensive and time-consuming. If all beneficiaries are adults and agree, they can sign a Waiver of Account, which significantly speeds up the closing process and saves the estate money.” Unfortunately, with the new heirs involved due to her brother’s death, a waiver wasn’t possible.

Getting Paid: Statutory Fees and the Gross Value

Emily was understandably concerned about the increased legal fees due to the added complexity. It’s vital to remember that Probate Code § 10800 states that “…fees are not calculated on the ‘net’ value (equity), but on the ‘estate accounted for’ (gross value of assets + gains – losses). A house worth $1M with a $900k mortgage still generates fees based on the full $1M value.” This highlights the importance of minimizing the size of the estate whenever possible through careful planning.

Distribution Mechanics and the Closing Reserve

Once the court approved the distribution plan, we couldn’t simply write checks. You cannot distribute assets until the Judge signs the Judgment of Final Distribution. Once signed, we had to record certified copies for real estate and write checks for cash gifts. Before finalizing the distribution, we requested authority to withhold a cash reserve (typically $2,000–$5,000) to pay for final closing costs, tax preparation fees, and county recording fees. Any unused amount will be distributed to the heirs later without a new court order.

Final Discharge: The End of the Line

Finally, to officially close the estate, we filed Judicial Council Form DE-295, the Petition for Decree of Final Discharge. This document releases the executor from liability. Without it, Emily would remain on the hook for the estate indefinitely. It’s a huge relief for our clients to reach this final step, knowing their loved one’s affairs are finally settled.

What failures trigger contested proceedings and court intervention in California probate administration?

The path through California probate is rarely a straight line; it requires precise adherence to statutory deadlines, accurate asset characterization, and strict fiduciary compliance. Without a clear roadmap, what begins as a standard administrative proceeding can quickly dissolve into a costly battle over interpretation, valuation, and beneficiary rights.

A stable probate administration outcome usually follows from clarity, consistency, and readiness for court review, especially when multiple stakeholders and competing interpretations are involved. When documentation supports enforcement and timelines are respected, families are less likely to face preventable escalation.

Verified Authority on Closing a California Estate

• Petition for Final Distribution: California Probate Code § 11600
  This is the “finish line” document. It tells the court what bills have been paid, what assets remain, and exactly who gets what according to the Will or intestacy laws. The court must approve this petition before a single dollar is distributed to heirs.
• Waiver of Account: California Probate Code § 10954 (Waiver)
  A powerful tool for speeding up the closing process. If all beneficiaries are competent adults and agree in writing, the executor can skip the detailed (and costly) formal financial accounting. This often saves the estate thousands of dollars in legal and accounting fees.
• Executor & Attorney Fees: California Probate Code § 10810 (Attorney Compensation)
  Just like the executor, the probate attorney is entitled to statutory fees set by law, not by hourly billing. These fees are requested in the final petition and are paid only after the judge signs the final order.
• Receipt on Distribution: California Probate Code § 11751
  Proof is required. After the judge orders distribution, the executor must deliver the assets and obtain a signed Receipt of Distribution from every beneficiary. These receipts must be filed with the court to prove the judge’s order was followed.
• Final Discharge: Judicial Council Form DE-295 (Ex Parte Petition for Final Discharge)
  The final step often forgotten. Once all receipts are filed, the executor must file this form to be “discharged.” This order formally relieves the executor of their duties and cancels the bond, ending their legal liability.
• Tax Clearance: Franchise Tax Board (Estates & Trusts)
  Before closing, the executor must ensure all personal income taxes of the decedent and fiduciary income taxes of the estate are paid. While a formal tax clearance certificate is not always required for smaller estates, personal liability for unpaid taxes remains a risk for the executor.