Per Capita vs Per Stirpes

Take-Away: This is a short follow-up to Carlene’s presentation yesterday morning at the CCT meeting. I want to stress that per capita by each generation is now the default rule of construction under the Michigan Estates and Protected Individuals Code (EPIC.) This was a fundamental change that occurred in the law in 2000 when Michigan adopted EPIC. Making interpretation even more of a challenge, older wills and trusts were ‘grandfathered’ so that per stirpes remained the default rule of construction for those older instruments.

Background: The per capita rule of construction applies to all governing instruments as defined in EPIC. This means that per capita by each generation is a default rule of construction for wills, trusts, beneficiary designations and powers of appointment.

Statute: The key statute provides: If an applicable statute or governing instrument calls for the property to be distributed ‘by representation’ the property is divided into as many equal shares as there are surviving descendants in the generation nearest to the designated ancestor that contains 1 or more surviving descendants and the deceased descendants in the same generation who left surviving descendants, if any. Each surviving descendant in the nearest generation is allocated 1 share. The remaining shares, if any, 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 distributions date. [MCL 700.2718(1) Obviously clarity in expression was not one of the hallmarks of EPIC!
Rule of Construction: Under a governing instrument adopted after April 1, 2000, reference in the instrument to by representation or by right of representation means per capita at each generation. [MCL 700.2718(1).] For an instrument executed prior to that date, the prior rule of construction continues to be applied.
‘By Representation’: In the good old days when I started out as an attorney, by representation meant per stirpes under the Revised Probate Code of 1978. Consequently, Michigan did a ‘flip’ in construction in 2000 with its adoption of EPIC.

Example: Mother dies with a will she signed in May 2000. Mother had 5 children, two of whom, A and B predeceased her. A and B each had their own children who survive; A had two grandchildren of mother, and B had 4 grandchildren of mother. Mother’s will left her estate to her children in ‘separate shares of equal value by representation.’ Mother’s surviving children, C, D and E each take their 20% of mother’s estate. The two shares of mother’s estate set-aside for A and B are added together under EPIC, or 40% of the residue of mother’s estate. That 40% is then divided equally among mother’s 6 grandchildren, i.e. a per capita distribution among the grandchildren at that level. Each grandchild thus takes 6.66% of their grandmother’s estate [40% divided by 6 grandchildren = 6.66% to each.]

If mother’s will had been signed in March 2000 with the same language, and under the same facts, then there would have been a per stirpes rule of construction applied to mother’s will. In that situation A’s two children would have divided their deceased parent A’s share of grandmother’s estate and they would have each taken 10% of their grandmother’s estate (not just 6.66%.) Similarly, B’s 4 surviving children would have split their deceased parent B’s share of mother’s estate and each would have taken 5% of their grandmother’s estate.

Practical Considerations:

Per Stirpes: I was never convinced that my clients wanted (or understood) a per capita at each generation interpretation for their wills and trusts, the number of grandchildren through a child was a choice of that child who had the bad habit of dying before their parent- it did not reflect a choice of the grandchildren. Accordingly I refrained from relying on any blunt reference to by representation, and I continued to use the terminology per stirpes in each of the instruments that I drafted unless the client clearly directed me to use a per capita distribution scheme. The continued use of a per stirpes distribution is also authorized under EPIC, but it is no longer the default rule of construction. [MCL 700.2718(2).]
What if..?’:The point I am trying to make is that clients really do not fully understand the implications of per capita, per stirpes, or by representation that often appear in wills, trusts, and beneficiary designations. While the law might provide default rules of construction for those legal terms, I always thought it was better to take the client through the various ‘what if…?.. scenarios if an intended beneficiary did not survive and not rely on a default rule of construction that can change over time. I sometimes went through the ‘what if..’ process pointing out that the intended beneficiary might actually decide to disclaim some or all of the inherited interest that would otherwise to distributed to them for tax or creditor protection purposes. In effect, I wanted my client to think through who they wanted to receive an inheritance if the primary beneficiary died before them, or the primary beneficiary surprised us all and made a qualified disclaimer of the inherited interest (or a portion of the inheritance.) From that ‘what if?’ process I then added the names the alternate beneficiaries, as opposed to relying on the by representation contingent beneficiary surrogates. In short, the client needed to tell me, and then read, who would take the inheritance share if the primary beneficiary did not survive to the date of distribution.