Trust Terminology: Carefully Use Descendant, Issue, Heir and Beneficiary

Take-Away: Often the terms descendant, issue, heir, or beneficiary are used interchangeably in a will or trust. Michigan’s EPIC provides some definitions to those legal terms. It also makes a couple of them mean the same thing. The legal concepts of descendant or beneficiary may be a bit broader than first meets the eye.

Background: Michigan’s Estates and Protected Individual’s Code (EPIC) and the Michigan Trust Code (MTC) provide the following technical statutory definitions:

Issue: EPIC defines issue to mean an “individual’s descendant.”  [MCL 700.1105(d).] Issue and descendant mean the same thing.

• Descendant: Descendant is defined in EPIC as “in relation to an individual, all of his or her descendants of all generations, with the relationship of parent and child at each generation being determined by the definitions of child and parent contained in this act.” [MCL 700.1103(k).] Adding to confusion is the fact that descendant is used to define descendant, which is not particularly helpful if the goal is to understand who is, and who is not, treated as a descendant. Yet what we do know is that issue (plural) is the same as descendant (singular), even though descendant is used throughout EPIC and the Michigan Trust Code in the singular. The term descendant is interpreted with reference to definitions for child and (More on these terms below.) Prior to EPIC, there was no formal definition of descendant. However, there was a formal definition for issue under the Revised Probate Code (RPC.) Unlike the prior RPC definition of issue, EPIC’s definition of descendant does not exclude descendants of a living descendant.
• Heir: An heir is defined in EPIC to mean a person, including the surviving spouse, or the decedent’s estate, which means that the State of Michigan is entitled under the statues of intestate succession to take a decedent’s property. [MCL 700.1104(p).] An heir is the taker (or heirs are those who take) under the specific facts that are applicable to a particular decedent. When the determination of heirs is made, the concept of representation means that a living person who takes excludes those who take through him/her. [MCL 700.2103 and 700.2106.]
• Child: A child is defined to include, but is not limited to, an individual who is entitled to take as a child under EPIC by intestate succession from the parent whose relationship is involved. Child does not include an individual who is only a stepchild, a foster child, or a grandchild, or more remote descendant. [MCL 700.1103(f).] This technical definition may soon change if the proposed Bill to amend EPIC becomes law where children born by artificial reproductive technology (ART) are included as a deceased individual’s child, although born long after the individual’s death.
• Parent: A parent includes, but is not limited to, an individual entitled to take, or who would be entitled to take, as a parent under EPIC by intestate succession from a child who dies without a will and whose relationship is in question. Parent does not include an individual who is only a stepparent, foster parent, or grandparent. [MCL 700.1106(j).] There is not complete symmetry between the two definitions of parent and child. A natural parent could lose permanent parental rights over a child [MCL 700.2114(3)] and thus cease to be a parent under EPIC’s definition. In contrast, a child continues to be a child of a parent whose parental rights are terminated under EPIC’s definition.
• Beneficiary: A beneficiary is broadly defined in EPIC, but it is to be distinguished from a trust beneficiary. The much broader definition of beneficiary used in EPIC includes, (i) with regard to a charitable trust the person who is entitled to enforce the trust; (ii) in relation to a beneficiary designation, the person that is [note, not named] a beneficiary of an insurance or annuity policy, an account with a POD designation, a security registered in beneficiary form (i.e. a TOD), or of a pension, profit-sharing retirement or of another nonprobate transfer at death. The Reporter’s commentary to the definition of beneficiary in EPIC notes: “There is considerable breadth to this definition of beneficiary, especially in subsection (iv) [e.g. a grantee of deeds; a donee; a taker-in-default of a power of appointment; a person in whose favor a power of attorney is exercised] which encompasses virtually any existing or potential economic interest under all types of governing instruments.”
• Trust Beneficiary: A trust beneficiary is defined as a person to whom one or both of the following apply: (i) the person has a present or future beneficial interest in a trust, vested or contingent; or (ii) the person holds a power of appointment over trust property in a capacity other than that of a trustee or trust director. [MCL 700.7103(l).] The Comments to the Uniform Trust Code with regard to this definition of trust beneficiary go even farther: “The term ‘beneficiary’ includes not only beneficiaries who received their interests under the terms of the trust but also beneficiaries who received their interests by other means, including by assignment, exercise of a power of appointment, resulting trust upon the failure of an interest, a gap in a disposition,  the operation of an antilapse statute upon the predecease of a named beneficiary, or upon termination of the trust.”

Instrument Definitions. A testamentary instrument can depart from these statutory definitions contained in EPIC.

• Child: Common examples where a will or trust might provide different definitions include: (i) the definition of a child may include a child through legal adoption, but only if the child who is adopted is still a minor at the time of the adoption, i.e. no adult adoptions would be recognized; or (ii) children born out of wedlock are sometimes expressly excluded from the term child. As noted, if the ART Bill is someday becomes the law, children born up to three years after the death of their parent would be classified as a child of the decedent for intestate succession rights, and such postmortem children might also ultimately be included in a class bequest ‘to my children’ or be added as beneficiaries to a ‘pot trust’ established ‘for my children.’ A specific definition of a child in a will or trust might also be warranted if the growing national trend towards recognizing an equitable adoption comes to Michigan.
• Parent: Parent might also warrant a re-definition under the ART Bill to address situations when a child is born with the use of a surrogate mother, or where more than two adults are treated as being parents in unconventional relationships where three adults live in the same household with a child, which some courts around the country are beginning to recognize.

Conclusion: From the scope of Michigan’s statutory definitions it is clear that descendant, heir, beneficiary, and trust beneficiary are all different, and they should not be used interchangeably. These statutory definitions will apply to a will, trust, or other ‘governing instrument’, e.g. a beneficiary designation, in the event that the instrument does not supply its own definitions. Consequently, a working understanding of the difference between these terms is required, especially when identifying persons who possess a right to receive information, the right participate in the administration of an estate or trust, or what procedures will have to be followed to modify or terminate a trust. Only issue and descendant will be treated the same. More to the point, as more nontraditional families become acceptable in our society, testamentary instruments will need to be tailored to add their own definitions to address accurately those mixed and expanded families.