In estate planning, a common phrase used in a Last Will & Testament or a Living Trust is that a gift or devise will "lapse." So what does this mean? In the estate planning context, when a gift lapses, it ceases or is extinguished. The lapsing of the gift is usually tied to some event such as the death of the beneficiary.
For example, a Will provision might read as follows: "To my nephew, John, if he survives me, I leave the sum of $5,000. If my nephew predeceases me, this gift will lapse." In this example, if John is living when the person creating the Will dies, then John will receive the $5,000. If John has already died, the gift to John ceases and will go to someone else named elsewhere in the Will or as determined by law.
Because provision for the beneficiary specifies that the gift will lapse on the occurance of some event, it is important to specify what happens to that gift. It can either be specified that upon lapse, the gift will go to some other identified person or it can provide that the gift will be devised under the "residuary" provisions--i.e. the "rest, residue and remainder" provisions of the Will. In the example set forth above, the Will could address this as "To my nephew, John, if he survives me, I leave the sum of $5,000. If my nephew predeceases me, this gift will lapse and in such case the sum of $5,000 shall instead be devised to my niece, Suzie."
A dliemna can arrise when the gift which lapses is within the residuary provisions of the Will. For example, if the Will provided: "To my nephew, John, if he survives me, I leave all of the rest, residue and remainder of my estate. If my nephew predeceases me, this gift will lapse." If the Will does not name an alternate beneficiary in the event of a lapse of a gift in the residuary provision, a problem can arise as to who the gift should be devised. Although beyond the scope of this blog entry, many states actually have "anti-lapse" statutes which address this situation.
Experienced estate planning lawyers typically address matters such as what happens in the event a gift lapses. Don't try to got it alone by drafting your own documents--you're just inviting trouble and additional expense later on!