Michigan’s Antilapse Statutes

Take-Away: It is fair to say that there is not much awareness of Michigan’s antilapse statutes nor understanding of their broad application to Wills, trusts, and numerous other nonprobate governing instruments.

Background: What happens when the named beneficiary dies before the testator, account owner, or settlor? Michigan has three separate statutes (actually many more) that address this situation, all called antilapse statutes. At common law, when a beneficiary died prior to the testator, the bequest or devise to the beneficiary lapsed and the gift went instead to the testator’s residuary estate, or in a few worst-case situations (in other states), the gift passed via the decedent’s intestacy. Antilapse statutes are considered to be remedial devices that are intended (in theory) to carry out the testator’s or transferor’s probable intent when a named beneficiary does not survive to the date of distribution. As a very broad generalization, an antilapse statute allows a deceased beneficiary’s children to inherit property that was intended to be left to that beneficiary and instead became a lapsed bequest or devise. The statute fills the void left by the prior death of the beneficiary.

EPIC: Consequently, we have a legislature that tells us in the Estates and Protected Individual’s Code (EPIC) what the decedent’s probable intent is when a named beneficiary dies ‘out-of-intended-sequence.’ This probable intent assumption reflected in EPIC may leave some folks uncomfortable, especially with changing attitudes throughout society as to what now comprises the ‘modern family.’

Antilapse Statutes: To directly address this ‘what if the beneficiary dies first? EPIC has three different sections that deal with Wills, nonprobate transfers, and future interests in trusts. Accordingly, one of these antilapse statutes will apply unless there is a clear and unambiguous language in the governing instrument to the contrary. Wills are covered by MCL 700.2603. Nonprobate beneficiary instruments and contracts i.e. beneficiary designations, are covered by MCL 700.2708 through 700.2712. Future interests in trusts are covered by MCL 700.2713 through 700.2716. Caution: It is a gross understatement to say that these statutes are easily understood, even by estate planning attorneys, let alone their clients. The statutes are long, cumbersome consisting often of multiple subsections, frequently  cross-referenced to other EPIC provisions regarding rules of construction, and in the case of a trust’s future interests, provisions strung out over multiple EPIC sections (most of which no one ever reads!).

Key Points: Some key points to keep in mind with regard to these antilapse statutes include the following:

1. Rule of Construction: These statutes are essentially rules of construction that identify alternate ‘takers’ when the named beneficiary dies ahead of the testator or the account owner.
2. Default Rule: These statutes are default rules that apply only if the instrument is silent or does not expressly address the situation of the named beneficiary who does not survive the testator or account owner..
3. Blood Relationship: The named or identified beneficiary must predecease the testator or account owner and that beneficiary must be a lineal descendant of the grandparent of the testator or account owner (which also includes under the statute a stepchild.)
4. Class Gifts: The antilapse statute can apply to class gifts, bequests, or devises.
5. 120-Hour Survivorship: Unless the governing instrument expressly provides to the contrary, an individual who is not established by clear and convincing evidence to have survived an event, including the death of another individual by 120 hours, is considered to have predeceased the event. This 120-hour survivorship rule is not impacted by the antilapse statutes.
6. Survivorship: Coming as a surprise to many is that if a bequest or devise is subject to a condition of ‘survivorship’ but it does not then proceed to identify an alternate beneficiary, then the antilapse statutes will nonetheless apply. Consequently, imposing a condition of survival is not an expression of intent contrary to the antilapse rule of construction. In short, there also needs to be an expression of an alternate beneficiary with respect to the bequest or devise for the antilapse statute to not automatically apply.

Examples:

Donnie’s Will that provides “I leave the amount of $100,000 cash to my sister, Marie Osmond if she survives me.” That pecuniary bequest would still be subject to Michigan’s antilapse statute if Marie died before Donnie. In that situation, Marie’s children would receive and divide the $100,000 bequest amongst themselves.

However, if Donnie’s Will was written “I leave the amount of $100,000 cash to my sister, Marie Osmond if she survives me, and if she does not survive me, then I leave that amount of $100,000 cash to my brother Jay Osmond..” then Michigan’s antilapse statute will not apply to identify who receives the $100,000 bequest. Jay receives the $100,000, even though Marie left surviving children.

If Donnie’s Will was written as “I leave the amount of $100,000 cash to my manager, Myles Jackson if he survive me.” Michigan’s antilapse statute will not apply, because Myles Jackson is not a lineal descendant of Donnie’s grandparents. Thus, the $100,000 cash will passes as part of the residue under Donnie’s Will.

Nonprobate Transfers: Adding to the confusion caused in large part by the bewildering terminology used in these antilapse statutes is the broad coverage of the antilapse statute that applies to beneficiary designations. It covers “a beneficiary designation that is expressly created by the governing instrument.” Many will recall that a governing instrument is broadly defined in EPIC. Including in the definition of governing instrument are: deed; Will; trust; funeral representative designation; insurance or annuity policy; account with POD designation; security registered in beneficiary form (TOD); pension; profit sharing; retirement, or similar benefit plan; and an instrument that creates or exercises a power of appointment. [MCL 700.1104(m).] Therefore, the antilapse statute applies to beneficiary designations associated with life insurance, annuities, and IRAs, not to mention TOD and POD beneficiary designations.

Planning: Assume that an individual is actually aware of these antilapse statutes. They may not want them to  apply to their testamentary instrument. Then again, they might want their instrument to be subject to the statute’s rules of construction. Consider adding an express provision that identifies the testator/account owner/settlor’s intent, since these antilapse statutes are default rules of construction and can be overridden by the terms of the instrument.

1. Antilapse Statute Not Applicable: If the testator, settlor, or account owner wants nothing to do with Michigan’s antilapse statutes, he/she might consider adding the following to their Will, Trust, or governing instrument ‘contract.’

   Upon the lapse of any beneficiary named in this instrument, consanguineous or not, that beneficiary’s descendants shall not take as substitute takers of any property that would have gone to any beneficiary predeceasing me or any designated event that is established under the terms of this instrument.

2. Antilapse Statute Applies: Some individuals might actually like the equitable/socially inclusive philosophy reflected in the antilapse statute, passing a gift onto the deceased beneficiary’s children. They also many not want to limit the antilapse statute solely to blood relatives. Thus, the scope of this intent might be expanded to benefit spouses, acquaintances, and members of a class. They may also want to override state statutes that pertain to beneficiaries who are treated as predeceased due to marital agreements, renunciations, divorce, or even felonious murder of the transferor by the transferee, all of  which automatic disinheritance provisions are part of Michigan’s EPIC. If that is the case, then such a provision  expanded upon what the current Michigan antilapse statutes provide, e.g. include descendants who might occur as a result of assisted reproductive technology.

   Upon the lapse of any beneficiary named in this instrument, consanguineous or not, at any time prior to my death or a designated event, the surviving legal, equitable, or intended descendants of this beneficiary, including those in gestation or adopted or in the process of adoption, shall share by representation as substitute takers in that which was given to the predeceased beneficiary.

3. Passing the Buck Option: Then again, rather rely on a cumbersome antilapse statute, an individual might prefer to let a trusted individual make the decision on who takes when the beneficiary has predeceased the decedent, akin to the agent acting along the lines of the donee of a power of appointment.

   Upon my death I appoint John Doe, as primary agent, and in the alternative, I appoint Mary Doe, to serve as my agent in accommodating my intent in regards to any transfer made to any beneficiary who predeceased me or the occurrence of any designated event, without constraints imposed by any existing state antilapse statute, but strictly in accord with what my agent considers to be my intent in substitute fashion in regards to distribution, but with the exception that my agent is not permitted to appoint to himself or herself, his or her estate, or his or her creditors, or the creditors of his or her estate.

Conclusion: There are few reported cases with regard to these EPIC antilapse statutes. As such, there is not much judicial guidance in the interpretation or application of the statutes to varying circumstances. Few trust instruments expressly opt out of the application of those antilapse sections that pertain to future trust interests, which means that the relevant statute may apply to a situation where a remainder beneficiary dies prior to the settlor. This is a topic that needs more attention when you consider that the Legislature is making an assumption of the transferor’s probable intent.