5-Oct-22
Per Stirpes, Per Capita, and Representation
Take-Away: With the Estates and Protected Individuals Code (EPIC) came a new interpretation of the legal term ‘by representation.’ That new interpretation is automatically applied anytime a Will or Trust is amended after April 1, 2000, perhaps unbeknownst to the testator or settlor.
Note: A few years back this topic was covered in a missive, However, it never hurts for a ‘refresher’, especially when dealing with rules of construction of Wills, Trusts, and beneficiary designations.
Background: The shorthand legal concepts of Per Stirpes, Per Capita, and ‘by representation’ are often used in Wills and Trusts. These legal terms are also used in beneficiary designations, and just about any other governing instrument covered by the Estates and Individual’s Code (EPIC.) What is important to keep in mind is that they are not the same thing, and they can lead to different distribution results. Importantly, back when EPIC was first adopted, it subtly changed the legal effect of by representation going from Per Stirpes to Per Capita at each generation.
EPIC: The sections of EPIC that identify this change in construction of the term ‘by representation’ follow (this is turgid reading, so feel free to skip it.)
MCL 700.2718(1): If an applicable statute or governing instrument calls for property to be distributed ‘by representation ‘or ‘Per Capita at each generation’, the decedent’s property is divided into a many equal shares as there are living descendants in the generation nearest to the designated ancestor that contains 1 or more surviving descendants in the same generation who left surviving descendants, if any. 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 the surviving descendants who were allocated a share and their surviving descendants had predeceased the distribution date. This rule of construction applies to documents originally created on and after April 1, 2000 and to all instruments amended on or after April 1, 2000 that use the phrase ‘by representation’ or ‘Per Capita at each generation.’ This rule of construction will apply to the entire governing instrument.
MCL 700.2718(2): If a governing instrument calls for property to be distributed per stirpes the property is divided into as many equal shares as there are surviving children of the designated ancestor and deceased children who left surviving children of the designated ancestor and deceased children who left surviving descendants. Each surviving child, if any, is allocated 1 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.
Per Stirpes: Per stirpes [MCL 700.2718(2)] is the traditional allocation by which a descendant is limited to the share or portion of the share that would have been allocated to a now deceased ancestor. Under MCL 700.2718(2) there is an allocation at each generation even if there is no living member of that generation. EPIC is a departure from the definition ‘by representation’ used in the ‘old’ Revised Probate Code (section 108) which contemplated a Per Stirpes distribution that begins at the first generation with a living member. (I wonder how many estate planning attorneys are even aware of this subtle change in construction of a Will or Trust?)
Representation: Therefore, Under EPIC, the use of the term ‘by representation’ is construed as a distribution of assets Per Capita at each generation, not Per Stirpes. [MCL 700.2106.] This is a departure from the ‘old’ Revised Probate Code that EPIC replaced, where ‘by representation’ was construed to mean Per Stirpes. ‘By representation’ now means ‘divided at each generation.’ Therefore, the decedent’s estate is divided into as many equal shares as the total of the surviving descendants in the next generation nearest to the decedent that contains 1 or more surviving descendants and the deceased descendants in the same generation who left surviving descendants, if any.
Examples:
#1: Frank dies a widower. Frank’s Will leaves his estate “to my children by representation.” Frank has two surviving children, Sam and Diane. Frank had one predeceased child, Carl, who left no descendants. Frank had a second child, Darla, who did not survive him. Darla left one child who survived her, Vicky. Frank had a third predeceased child, Walt, who was survived by four children, Huey, Dewey, Louie and Tony. (Must be a bad gene pool if three kids do not survive their father!)
EPIC outlines the steps to take to determine how Frank’s estate will be divide:
Step 1. Look to the generation nearest Frank with a surviving descendant. This generation contains two surviving children (Sam and Diane) and three deceased children (Carl, Darla, and Walt.)
Step 2. Carl is disregarded since he left no children. [MCL 700.2718(3).]
Step 3: Frank’s estate is divided into 4 shares. Sam and Diane each receive one share, each share constituting 25% of Frank’s total estate.
Step 4. The balance of Frank’s estate (50%) is combined and divided equally among Frank’s 5 living grandchildren (Vicky, Huey, Dewey, Louie and Tony.) Thus, each of these 5 grandchildren will receive 10% of Frank’s total estate.
#2: Ward dies a widower. Ward had three children, Alan, Betty, and Charlie. However, only Alan survives his father’s death. Betty predeceased Ward leaving two children, Wally and Theodore. Charlie predeceased Ward, leaving three son’s, Huey, Dewey, and Louie.
RPC: Under the old Revised Probate Code, Alan would receive one-third of Ward’s estate, Betty’s one-third would be divided equally between Wally and Theodore (they each would receive one-sixth of Ward’s estate) and Charlie’s one-third share would be equally divided among Huey, Dewey, and Louie (where each of them receive one-ninth of Ward’s estate.)
EPIC: Under EPIC, one share is created for each surviving descendant in the generation nearest to Ward, and one share is created for each predeceased descendant in the generation who left a surviving descendant. The descendant in the nearest generation to Ward, Alan, receives one share, equal to one-third of Ward’s estate. The descendants of the predeceased ancestors (Betty’s two kids Wally and Theodore, and Charlie’s three kids, Huey, Dewey and Louie, take the other two shares (initially created for Betty and Charlie, who are now deceased.) Betty and Charlie’s two shares are combined and divided by the number of Ward’s descendants in the next generation (excluding the descendants of a living ancestor, i.e. Alan.) Thus, under EPIC, Alan receives his one-third share of Ward’s estate, but the other two shares (two-thirds of Ward’s estate) are divided equally among Ward’s 5 grandchildren, or roughly 13.3% of Ward’s estate goes to each grandchild.
Observation: I suspect that most individuals who execute Wills, Trusts, or beneficiary designations do not pay much attention to terms like Per Stirpes, Per Capital, or ‘by representation.’ However, use of these shorthand terms can have a dramatic impact on the amount an heir might receive if their ancestor died prior to the decedent. Consider an individual (say its Ward) who created a trust in 1998 which used the term ‘by representation.’ Then, in 2018 the individual amends their trust, continuing to use the term ‘by representation’ in their trust amendment. In the second example, Wally and Theodore would receive 16.6% of their grandfather’s estate under the existing trust. However, with the trust amendment, where ‘by representation’ is perpetuated, now with the new construction, Wally and Theodore will receive13.3% of their grandfather’s estate. The rhetorical question is did Ward know that he was possibly changing the amount that Wally and Theodore will receive from his estate? Did Ward’s estate planning attorney realize that there is a different division of his client’s estate merely by perpetuating the shorthand ‘by representation?’
Conclusion: While most individuals will not sit quietly for a wordy tutorial on the differences between Per Stirpes, Per Capital, or ‘by representation’ they need to be alerted to the impact of the choice of ‘by representation’ in their estate planning documents.