Making gifts at the end of your life can be a way for you to leave a legacy and impart one final good deed on your friends and family. If the beneficiary of your gift dies before you do, issues arise as to what happens to that gift. The answer depends on your estate plan (if any) and how your local laws handle succession.
In general, you have the ability to control who gets your property when you die. If you write a will, for instance, you can gift specific items to certain people and explain what process, if any, you want to use if that beneficiary dies before you. If you die without a will, your local succession laws dictate who gets your property. If one of your beneficiaries predeceases you, the gift generally goes to that beneficiary's children. There are two distribution schemes: per stirpes distribution and per capita distribution.
Per stirpes is Latin for "by the root"; it is a legal term that describes how property is distributed to an heir's children when that heir dies before the decedent. Under per stirpes distribution, the children divide their deceased parent's share among themselves equally.
For example, John, the father of two children, dies. John's son died before John and left two children (John's grandchildren). John left half of his estate to his son and half to his daughter. Because John's son died before him, his share goes to his children (meaning they each get one-fourth of the estate).
You can state that you want per stirpes distribution in your will; your state may also prescribe this method as the default way to distribute property to a predeceased parent's children if you die without a will.
Per capita is Latin for "by the head." Under per capita distribution, each heir is entitled to an equal portion of the decedent's gift, based on the total number (or heads) of the living heirs. So if John left his estate to his son and to his daughter, but John's son died and left three children (John's grandchildren), each living heir (John's daughter and three grandchildren) would be entitled to one-fourth of the estate.
Exactly what happens to a person's inheritance if she dies before the testator depends on numerous facts and circumstances. If the decedent left a will, but did not name a successor beneficiary, then the gift may lapse and be included in the residual estate (the property remaining after specific gifts are made). If the decedent died without a will, then the state's succession statute would determine who gets what. Consult with an attorney to discuss potential problems relating to estates and inheritance.