An essential part of drafting a will or a living trust involves collecting information about personal and financial objectives of a client. Most clients are very clear as to whom they wish to leave their personal and financial property – a surviving spouse, children, and grandchildren are the most common beneficiaries.
It is also our job to make sure that those intended beneficiaries receive their inheritance. What happens if the intended beneficiary of a specific or residuary bequest under a will or trust dies before the client? Who will inherit?
There are three designations commonly seen in estate planning documents such as wills and trusts – Per Stirpes, Per Capita and By Representation. Each will be discussed over the next few weeks. We will also be discussing the importance of these designations in ‘will substitute’ instruments such as IRA and 401K plans, life insurance, etc.
The most common phrase used in estate planning documents is “per stirpes”. Essentially, “per stirpes” means that a distribution will be made to the surviving family members in the family tree when an individual dies before the testator or settlor of a trust. This means that surviving “issue” will inherit equal portions of the share their deceased ancestor would have taken if living. “Issue” are persons descended from a common ancestor.
For example, assume that Mr. Client leaves his estate to three Children, A, B, and C, each of whom has three children. At the time of Mr. Client’s death, one of his children, A, has predeceased. Mr. Client’s Will says, “I leave all of my property, real and personal, to my three children, per stirpes.” Who will inherit and in what proportions? The answer is that Mr. Client’s two living children (B & C) will each inherit a 1/3 share of his estate. The remaining 1/3 share which would have been inherited by the predeceased child, A, will now be divided equally between the three surviving children, or issue, of A.
Sometimes, instead of using the phrase, per stirpes, estate planners will use another format. For example, Mr. Client’s trust says, “The Settlor directs that the trustee shall distribute all of the then remaining property, both real and personal, of this trust to Settlor’s Children A, B, and C, except that, should any of them not be living at such time, but leave issue surviving, the issue of such predeceased child shall take the share, per stirpes, which their parent would have taken, had he or she survived.” The result is the same if A should predecease Mr. Client and leave three surviving children.
What happens if there is no per stirpes designation in a will or trust? The answer will be discussed next week.