A man, say, Hilbert, buys second-to-die life insurance, then dies. Then one of his inheritors, Daniel, dies. Then Hilbert’s spouse dies, making the policy ready for distribution to the inheritors. Is the dead inheritor Daniel still eligible to receive his share—I.e., if Daniel writes instructions in his will regarding what is to be done with his portion of the policy in the event of his early death, will that be effective?
Note: I am not a lawyer; this is not legal advice.
The situation is likely to vary by state.
It is likely to get complicated unless either (a) Daniel is a direct issue (child/grandchild etc.) of the Hiberts, or (b) their trust contains explicit clauses as to what should happen in the event of Daniel dying before the last of the Hiberts. If neither of those apply, I believe that Daniel's portion would revert to the residual estate of (probably) the spouse.
If there is a possibility of such a situation arising, the consensus is that you should explicitly make provision in the trust for alternative beneficiaries should any of the original beneficiaries have died.
Will Daniel Inherit...?
The article What Happens if a Beneficiary Dies? starts with a warning:
Not planning for what will happen if a beneficiary dies can have unexpected and costly consequences. Complications can arise with life insurance policies, payment on death (POD) accounts, transfer on death (TOD) accounts, wills, and trusts.
For the case where the beneficiary dies first (i.e. the OP's situation), it states:
1] If the beneficiary dies before the person making the gift: The law prohibits us from leaving property to a deceased person. When there are no named living beneficiaries, TOD and POD accounts as well as life insurance policies are paid to the decedent’s estate, requiring probate.
With a will or trust a gift to a deceased beneficiary will lapse (go away) unless protected under Florida’s anti-lapse statutes (discussed below). When a specific gift (e.g. $10,000 or the home) lapses it becomes part of the residual estate (what is left after distributing specific bequests). If the lapsed gift is part of the residual estate, it goes back into the pot to be divided among the remaining residual beneficiaries.
(Note: decedent's estate in the above is that of the person whose will or trust is being distributed, not that of the potential beneficiary).
So: apart from "anti-lapse" situations (see below), if the (potential) beneficiary is already dead when the settlor of the trust dies (and there are no instructions in the trust to handle this eventuality), the allotment to that beneficiary passes back to the settlor's estate (one of the Hiberts: also see below) and does not pass to the beneficiary's estate1,2.
On the subject of "anti-lapse", the same article notes:
The Florida’s Probate and Trust Codes have anti-lapse provisions which provide that a gift will not lapse if the deceased beneficiary is a descendant of a grandparent. In that case, the gift goes to the deceased beneficiary’s lineal descendants: first to children and if a child has died to his/her children. However, rather than relying on Florida Law, it is always best to specify who will receive a gift if the primary beneficiary dies.
As implied by "Florida" in the above quotes, the situation in the US can vary by state, although as Rules Regarding the Distribution of a Trust When a Beneficiary Is Deceased on LegalZoom states:
While each state drafts its own set of trust laws, there has been a movement to create a standard trust code. As of publication date [not specified], the Uniform Trust Code has been enacted in 23 states. The UTC has been endorsed by the American Bar Association and AARP. The UTC offers a good general framework. However, when attempting to determine the rules specific to your situation, review your state laws and consider consulting with a licensed attorney.
To Whose Estate Will the Allotment Return
Assuming there are no clauses in the trust dealing with Daniel predeceasing the Hiberts, the portion that would have been allotted to Daniel will return "to the decedent's estate". At first glance, this would then be covered by the terms of the spouse's will (since they died second).
However, it is common (and advisable) for wills to contain so-called "Titanic" clauses: what should happen if two parties (particularly a pair of spouses) die within a short time of each other. The purpose of such clauses is to prevent confusion (=legal wrangling) should, for example, both parties die in a car accident and it is unclear which died first.
Therefore, assuming the Hiberts' wills contained such clauses, if their two deaths occur within the time specified by those clauses, the question of what happens to the trust allocation may end up being decided by the will of the first to die and not the second.
Without an explicit clause, the results will again vary by state, although some have adopted the Uniform Simultaneous Death Act which states that if two people (e.g. husband and wife) die within 120 hours of each other (and their wills contain no special clauses), each is considered to have predeceased the other. More on this can be found in the article Why your estate needs a ‘Titanic clause’ on CNBC.
1 This mirrors what happens with Wills, according to the (UK) solicitors Howells:
What Happens if a Beneficiary Dies Before the Testator?
If a beneficiary dies between the point when the Will was made and the death of the testator, under this scenario the beneficiary’s estate will usually have no benefit from the Will.
If the beneficiary has died before the testator, the benefit is said to have lapsed, although there are exceptions to this rule.
(The "exceptions to this rule" as similar to the "anti-lapse" rules above: in the case where beneficiaries are direct issue (children/grandchildren etc.), the allotment normally will go to children/grandchildren of the beneficiary rather than reverting to the residual estate).
2 As the LegalBeagle page notes – assuming no clauses in the trust to the contrary – the allotment will pass to the beneficiary's estate should the beneficiary die after the settlor (whether or not the trust has been processed when the beneficiary dies).