One of the big questions your estate plan seeks to answer is this: “who should receive your assets when you die?” We call the person receiving a “beneficiary” of a trust or a “devisee” in will. But, what happens if your beneficiary or devisee dies before you do?
Well, first of all, if a beneficiary or devisee dies before you do, go see your estate planning attorney. You may be able to update your estate planning documents to remove that person who has predeceased you.
But, odds are, even if you don’t get around to updating your estate plan, your estate plan already has some provision for what happens if a beneficiary or devisee predeceases you. If a specific person is named in the will to receive the property, the property will pass along to the next named person. An example of this might be “One million dollars to Alice. If Alice predeceases me, then this distribution shall instead be distributed to Bob.”
On the other hand, the estate plan might specify that a distribution lapses, if the beneficiary isn’t surviving. This might look something like “One million dollars to Alice. If Alice predeceases me, then this distribution shall lapse.” If the distribution lapses, then usually there is some later provision to address how the remainder of the assets are distributed.
Clients often wish that if a beneficiary predeceases their intended beneficiary, that beneficiary’s share will go to that beneficiary’s descendants. Their are a few common ways of dividing up property among descendants: per stirpes, per capita and per capita at each generation.
Don’t be frightened of the Latin here. We’re here to break it down:
Per Stirpes
Per stirpes is Latin for “by the branch” (or “by the way of the stems” depending on who you ask). The idea is that the share is divided among that “branch” of the family. Arizona law instructs property distributed per stirpes to be “divided into as many equal shares as there are surviving children of the designated ancestor and deceased children who left surviving descendants. Each surviving child is allocated one share. The share of each deceased child with surviving descendants is divided in the same manner, with subdivision repeating at each succeeding generation until the property is fully allocated among surviving descendants.”
For a practical example, let’s say, that Alice has two children: Bob and Carol. Bob has one child- Darla. Carol has two children: Edith and Frank. Here’s the family tree for reference:
If Alice’s estate plan leaves assets to her “descendants per stirpes,” then Bob and Carol each get half of the estate on her death. If Bob and Carol predecease Alice, Darla get’s Bob’s half interest in the estate because she is the only on in his branch. Meanwhile, Edith and Frank each get a quarter of the estate, because Carol’s interest is further divided among her branch.
Per Capita
Per Capita is Latin for “by the head.” This distribution scheme divides up the group of people that would receive equally, based on the number of people in that group receiving a distribution.
Using the previous family as an example: Let’s say Alice’s estate plan leaves everything to her children per capita. Bob and Carol would each receive equal shares. What if Bob predeceased Alice? Well, then it all goes to Carol, Alice’s only surviving child. What if Alice left everything to her grandchildren per capita? This would mean that Darla, Edith and Frank would each get one-third of the estate.
Per Capita at each Generation or By Representation
Some estate plans, rather than using per stirpes or per capita use the phrase “by representation” or “per capita at each generation.” Arizona law says that if the estate plan calls for one of these distribution schemes the property “is divided into as many equal shares as there are surviving descendants in the generation nearest to the designated ancestor that contains one or more surviving descendants and deceased descendants in the same generation who left any surviving descendants. Each surviving descendant in the nearest generation is allocated one share. Any remaining shares are combined and then divided in the same manner among the surviving descendants of the deceased descendants as if the surviving descendants who were allocated a share and their surviving descendants had predeceased the distribution date.”
For this example, we need a more complex family. Let’s give Bob and Carol a third sibling, Gary. Gary has a two kids named Henry and Ignacio. Ignacio has one child named Joe. Frank has two children named Kelly and Lou. Here’s a family tree:
If Carol, Gary, Frank and Ignacio predecease Alice and her estate calls for distribution to her descendants by representation here is the break down of distributions. At the first generation, the estate is split into thirds. Bob, as the only survivor, takes his third. The other other two-thirds are thrown into the pot and divided up among Carol and Gary’s children- Edith, Frank, Henry and Ignacio. Each would receive an equal share of the two thirds, which is one-sixth each. Edith and Henry are surviving, so they each take their one-sixth. The other two-sixths are thrown back into the pot and divided among the Frank and Ignacio’s children, Kelly, Lou and Joe. Each would receive one-ninth.
Comparison
Curious what the prior example would look like if we used the same scenario but distributed per stirpes? Bob would still get one third. Carol’s one-third would be divided between Edith and Frank. Each would take one-sixth. Frank’s one sixth would be further divided between Kelly and Lou, who each would receive one-twelfth. Gary’s one-third would be divided among Henry and Ignacio, who each would receive one-sixth. But since, Ignacio is not surviving, his share would be distributed to his only child- Joe.
So in summary, Bob would receive one third. Edith and Henry would receive one sixth each. Kelly and Lou would each receive one-twelfth and Joe would receive one-sixth.
