Per Stipes vs. Per Capita and Rules of Construction: In the eye of the beholder but for the Michigan Antilapse Statute

Take-Away: In past weeks we have had discussions about the difference between per stirpes and per capita used in wills, trusts and beneficiary designations and other formal ‘rules of construction.’ Despite  long-standing definitions of these terms, their causal use can still create disputes in the interpretation of a will or trust where these terms are normally found.

Background: We often see used in residuary bequests and devises the use of terms like ‘to my descendants in separate shares of equal value, per stirpes’ or ‘to my grandchildren per capita.’ While these terms have fairly predictable legal interpretations, the context in which they are used sometimes leads to anything but a predictable outcome.

Example: In a recent court decision in Texas, the trust beneficiaries challenged phrase “in equal shares per stirpes” dividing the residue of a trust.  Archer vs. Moody, No. 14-15-00945-CV, 2017 Tex. App. Lexis 11642 (December 14, 2017).

• Facts: The trust was created in 1934. A 15,000 acre ranch was transferred to the trust as its corpus. The trust directed that it was to be terminated on the death of the settlor’s last surviving grandchild- William Lewis Moody, IV, who died in 2014. The contested phrase in the trust was: “The trustee shall upon the termination of the trust distribute the Trust Estate in equal shares per stirpes to the then living grandchildren of William Lewis Moody, III, and the surviving issue of his deceased grandchildren.”  William Lewis Moody IV had 4 children: Janice, Linda, Elizabeth, and W.L Moody. William Lewis Moody IV also had two surviving siblings, Edna and Virginia.  Edna and Virginia each had two children. Thus, William Lewis Moody III had 8 living grandchildren in total when William Lewis Moody IV, the settlor’s last living grandchild,  died.
• Dispute:  When the trust terminated, Moody IV’s heirs interpreted the trust to require a distribution of the remaining corpus equally among all 8 grandchildren- 1/8^th  of the residue to each grandchild. ‘Not so fast’ responded the children of Edna and Virginia; they interpreted the same trust to require a distribution in one-third (1/3^rd ) shares among the living heirs of Edna, Virginia and Moody IV. This would result in Edna and Virginia’s children each dividing 1/3^rd of the trust estate, i.e. Edna’s two heirs would each take 1/6^th and Virginia’s two heirs would take 1/6^th of the total trust estate, not 1/8^th as advocated by Moody IV’s heirs. The decision does not quantify the dollar difference between a 1/8^th share and a 1/6^th share but it was enough apparently to trigger litigation among cousins.
• Trial Court: The Texas probate court held that the trust corpus should divided in 1/8^th shares, one for each grandchild.
• Court of Appeals: The appellate court reversed the trial court. It awarded to each of Edna and Virginia’s children 1/6^th. Moody IV’s 4 children divided the remaining 1/3^rd interest, so each of them took 1/12^th of the trust estate.
• Court’s Reasoning: The appellate court held the trust’ phrase to be unambiguous, and consequently found it unnecessary to construe the terms of the Moody The appellate court relied upon the Restatement (Second) of Property, which purports to be a summary of the common law in the United States, to find that the trust did not have to be judicially construed to guide the trustee in the division of the trust’s residue. That common law summary set-forth in the Restatement (Second) of Property provides:

“a per stirpes class distribution requires a distribution by ancestor: If a gift is made to the ‘grandchildren’ of a designated person ‘per stirpes’ the described class members stem from different children of the designated person. In such case, the words ‘per stirpes’ suggest an initial division of the subject matter of the gift into shares, one share for the children of each child of the designated person, thereby overcoming the per capita division otherwise called for by the rules of this section.”

Michigan Example:  For some comparison, consider a Michigan will dispute case with similar (ambiguous?) terms. The will provided a bequest ”to my brothers and sisters that survive me, share and share alike or to the survivor or survivors thereof.” The Michigan Court of Appeals, based upon the repetitive use of the survival condition used in the will, held that the gift itself described only those siblings who actually survived the decedent, thus excluding the descendants of predeceased siblings of the decedent. The opinion only mentioned in a footnote, in passing,  MCL 700.2603(1)(c), which is Michigan’s antilapse statute. If the Michigan antilapse statute had been applied by the Court [it came into effect in 2000], it would have preserved the gifts for descendants of any of the decedent’s deceased siblings, and it would not have preserved any gifts for the descendants of siblings of a predeceased spouse. Morse v. Sharkey (In re Estate of Raymond) 483 Mich 48; 764 NW2d 1(2009). Welcome to the world of will construction and application of Michigan’s antilapse statute, a statute so hard to understand that the Michigan Supreme Court apparently simply decided to ignore it’s application in construing the will.

Michigan’s Antilapse Statute: While I am not convinced that the ‘no-brainer’ conclusion of the Texas appellate court is correct,  probably what is more important is that the decision provides a vivid reminder that the Michigan Estates and Protected Individuals Code (EPIC) contains many rules of construction for wills (MCL 700.2601 et seq.) and other ‘governing instruments’ [which includes deeds,  trusts, IRA beneficiary designations, etc. MCL 700.2701 et. seq.]  just like the Restatement (Second) of Property provided rules to interpret the Moody trust’s use of the term  per stirpes.

The antilapse statute sometimes seems to provide counter-intuitive rules of construction for a will or trust,  and at times it departs from prior precedential decisions under the former Michigan Revised Probate Code. These collective rules of will and governing instruments construction are what are commonly referred to as the antilapse statute, and understanding them is not for the faint of heart.

Just reading the editorial comments to one of these antilapse sections, written by John Martin,  gives me a bad case of heartburn while providing sufficient reason to not make many (or any) assumptions when it comes to interpreting a will or another governing instrument if the antilapse statute applies. Consider some of Professor. Martin’s cautionary remarks associated with the rules set forth in MCL 700.2603:

• “Section 2603(1) expands the antilapse rules previously stated in the RPC {Michigan Revised Probate Code} for both single gifts and class gifts.”
• “The RPC rules applied to a predeceased beneficiary who was a lineal descendant of a grandparent of the testator. EPIC expands the rules to cover a predeceased grandparent and a predeceased stepchild.”
• “A very important rule of construction is stated in 2603(1)(c). It probably is not a change from current law, but it is one that might surprise many practitioners….The rule says that stating a condition that a beneficiary must survive the testator is not sufficient, by itself, to overcome the antilapse statute. This follows from the fact that the law itself requires a beneficiary to survive to receive a gift under a will. Put simply, stating a condition of survival is NOT an expression of intent contrary to the antilapse rule of construction.  If the testator intends the gift to fail if the beneficiary fails to survive and indicates that intent by specifying an alternative devise [a term of art defined in MCL 700.2601(a),] the alternative devise takes effect only if an expressly designated devisee is entitled to take under the will.”
• { Example: What this means is that if I use a will residuary provision that says ‘I leave the residue of my estate to my brother if he survives me’ and I say no more, then the antilapse statute will apply to that residuary bequest if my brother does not survive me; since my brother is a descendant of my grandparent, the antilapse statute will redirect the residue of my estate to my deceased brother’s surviving descendants, even though they are not named in my will. See MCL 700.2603(1)(a). If I do not want the antilapse statute to apply to my will and thus control who receives the residue of my estate [remember the statute applies to the lapse if a named beneficiary does not survive the testator] then I need to be clear who is to receive the residuary bequest if my brother does not survive me, e.g. “I leave the residue of my estate to my brother if he survives me, and if my brother does not survive me, then I leave the residue of my estate to my sister, if she survives me.” In short, lawyers who stop with ‘if he/she survives’ in their drafting  invite the application of the Michigan antilapse statute which is pretty confusing even for those of us who are accustomed to reading wills and other governing instruments that contain dispositive provisions.}
• “Another provision that will give pause to a careful practitioner is the rule of construction in 2603(1)(e). If an appointee under an exercise of a power of appointment fails to survive the testator, a descendant or descendants of the appointee may take and may do so even if a descendant is not an object of the power.”
• {Example: In my will I include the following provision: “ I give to my brother a limited power of appointment over the residue of my estate, exercisable by my brother in favor of his wife or his descendants if he survives me.” My brother does not survive me. On my death the testamentary limited power of appointment that was given to my brother under my will  now passes to my brother’s descendants [who are descendants of our grandparents.] What if I did not want my niece to hold a power of appointment over my estate? Again, I need to expressly address the implications of the prior death of my brother who holds the power of appointment to avoid the application of the antilapse statute to my will,  which would otherwise permit his descendants to exercise the power of appointment that I gave to him. Surprised?

Suggestion: When you review a trust for a client, one thing to look for is whether in the trust boilerplate provisions the client directs that Michigan’s antilapse statute does not apply to the construction of that instrument. For those antilapse rules that apply to governing instruments, like a trust, the client can always provide a direction that the antilapse and other EPIC rules of construction provisions will not apply, MCL 700.2701 says:  “In the absence of a finding of a contrary intention, the rules of construction in this part control the construction of a governing instrument.”  When you summarize the terms of a will or trust, it will be important to memorialize for future reference if the instrument is subject to the statutory rules of construction, i.e. the antilapse statute,  (or not.) Standard rules of construction of a testamentary instrument can be very helpful in resolving disputes, but they presume that you know the practical result of their application. Not too many are comfortable working with Michigan’s antilapse statute.