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A.R.S. § 14-2707

Future Interests: Beneficiary Dies Early

Verified April 4, 202657th Legislature, 1st Regular Session

When a trust beneficiary dies before the distribution date, Arizona law creates a substitute gift for that person's descendants. This antilapse-style protection applies to future interests in trusts. It keeps assets within the family line rather than letting the gift fail.

Title 14, INTESTATE SUCCESSION AND WILLS

azleg.gov

How Trust Distributions Handle a Beneficiary's Death

Trusts often hold property for distribution at a future date. A trust might say a grandchild receives their share at age 25. Or it might say assets pass to children after the surviving spouse dies. When a beneficiary dies before that distribution date, the question becomes: where does the property go?

A future interest under the terms of a trust is contingent on the beneficiary surviving the distribution date. If a beneficiary of a future interest under the terms of a trust fails to survive the distribution date, the following apply: if the future interest is not in the form of a class gift and the deceased beneficiary leaves surviving descendants, a substitute gift is created in the beneficiary's surviving descendants.

A.R.S. § 14-2707(A)(1)

Arizona law treats these situations similarly to the antilapse rule for wills. The deceased beneficiary's share passes to their own descendants by representation. This prevents a gap in the trust's distribution plan and keeps assets flowing to the next generation.

Survivorship Language and Alternative Gifts

Just like with wills, survivorship language in a trust can override this protection. If the trust says "to my daughter, if she survives the distribution date," that language shows the substitute gift should not apply.

An alternative future interest also takes priority. If the trust names a backup beneficiary for the share, that backup replaces the automatic substitute gift created by this statute.

When no taker exists after applying these rules, the property follows a fallback path. If the trust was created by a nonresiduary provision in a will, the share passes under the residuary clause. If that still produces no taker, the property goes to the transferor's heirs.

14-2707. Future interests; trusts; distribution date; passage of property; alternative future interest; definitions A. A future interest under the terms of a trust is contingent on the beneficiary surviving the distribution date. If a beneficiary of a future interest under the terms of a trust fails to survive the distribution date, the following apply: 1. Except as provided in subsection C of this section, if the future interest is not in the form of a class gift and the deceased beneficiary leaves surviving descendants, a substitute gift is created in the beneficiary's surviving descendants. Surviving descendants take by representation the property to which the beneficiary would have been entitled if the beneficiary had survived the distribution date. 2. Except as provided in subsection C of this section, if the future interest is in the form of a class gift, other than a future interest to issue, descendants, heirs of the body, heirs, next of kin, relatives, or family or a class described by similar language, a substitute gift is created in the surviving descendants of any deceased beneficiary. B. Words of survivorship attached to a future interest are, in the absence of clear and convincing evidence to the contrary, a sufficient indication of an intent contrary to the application of this section. C. If a governing instrument creates an alternative future interest with respect to a future interest for which a substitute gift is created by subsection A of this section, the substitute gift is superseded by the alternative future interest.

This page provides general legal information about Arizona statutes and is not legal advice. For guidance on how this law applies to your situation, speak with a qualified attorney.

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