There are many scenarios in estate planning where a deceased person receives a gift of property. Someone’s will may not have been amended in time. A trust drafted many years ago leaves an asset to several siblings, one of whom has passed away since the document was created. State intestacy laws designate assets to classes of family members without regard to which ones are alive or dead.
If the initial gift is from a parent to her own child, most states will allow the child’s descendant to step into the child’s shoes and take the gift. This gives the descendant a “right of representation”, and is still effective even if the descendant is not specifically named in the will or trust.
However, things obviously start to get complicated when more children or more descendants are involved. What if the initial gift is to be shared equally between three or four children? What if more than one of these siblings predeceased their parents? What if the predeceased children have multiple children of their own? In what proportions should each beneficiary take?
A Sample Family with Distribution Issues
To help us illustrate how these issues are resolved, let’s create a sample family to help illustrate these issues:
- U, a widowed spouse, has three children, C1, C2, and C3.
- U also has four grandchildren.
- GC1, GC2 and GC3 are C1’s children.
- GC4 is C2’s child.
- C3 is childless.
We then assume that U passes away, and that at least one of U’s children is already deceased.
Now we discuss the four main approaches to estate distribution to those with a right of representation.
Under a “per stirpes” distribution, the property is automatically split into a number of shares that is equal to the number of children the deceased person had. One concern some have with this method is that an inequity is often created at the grandchildren’s generation.
- For example, under a “per stirpes” distribution, three shares of U’s estate would exist since U had three children.
- However, let’s say that C1 and C2 died before U’s death. U’s grandchildren would then receive unequal amounts:
- GC1, GC2, and GC3 would each get one-ninth of U’s estate (they split C1’s one-third share).
- GC4 gets one-third outright (C2’s entire share).
- C3 gets one-third.
About 25% of U.S. states currently apply this distribution method in its intestacy laws, including Delaware, Florida, Illinois and Ohio (incidentally, for a very, very entertaining description of per stirpes, check out “What Does ‘Per Stirpes’ Mean? Let the Three Little Pigs Show You” on Ohio attorney Matthew Gibson’s Wills & Wealth blog).
“Modified” Per Stirpes
The “‘modified’ per stirpes” distribution combats this potential inequity by creating an exception to the “per stirpes” rule stated above. It states that if all descendants entitled to a share are in the same generation, all of them must receive an equal share.
- In the U family example, this would apply only if all of U’s children predecease U.
- In that case, GC1, GC2, GC3 and GC4 are all in the same generation, and all are the only takers of U’s estate. Therefore, under a “modified per stirpes” distribution, each would take a one-fourth share.
However, this solution serves to merely delay the potential inequity to the following generation.
Fewer than 10 states apply this rule in their intestacy laws, including Maryland and the District of Columbia.
Per Capita By Representation
Under any “per capita” distributions, gifted property is split into shares equaling the number of descendants in the first generation with any survivors. Strangely enough, under this approach, inequities can be created if the family’s deaths occur in a certain order:
- For example, in the U family, if none of U’s children survive, U’s grandchildren’s generation is the first with any survivors. Since U had four grandchildren, each would receive a one-fourth share.
- However, let’s instead say that C1 and C2 predecease U. U’s children’s generation is the first with any survivors (C3), so three equal shares are created. Therefore, as a result of the order of deaths, the same inequity resulting from a “per stirpes” distribution would occur:
- GC1, GC2, and GC3 each get one-ninth (they split C1’s one-third share).
- GC4 gets one-third (C2’s entire share).
- C3 gets one-third.
This rule applies in nearly one-third of U.S. states’ intestacy laws, including Virginia, Pennsylvania and California.
Per Capita at Each Generation
“Per capita at each generation” adds to the “per capita by representation” approach by creating equivalent shares for the members of every following generation. In most cases, the results will be the same as “per capita by representation”, but the attention to following generations is illustrated in this example:
- In U’s family, if C1 and C2 predecease U, three shares are created at the children’s generation.
- C3 gets a one-third share. Since C1 and C2 are deceased, their one-third shares are combined into a two-thirds share.
- U’s four grandchildren split that two-thirds share equally. As a result, they will each receive a two-twelfths, or one-sixth, share.
This approach is used in almost one-fourth of states’ intestacy laws, including Arizona, Colorado, New Jersey and New York.
As always, the recommendation is for you to check your particular situation closely. For your situation, the applicable distribution approach depends either on your state of residence or which one your will or trust contains. In any event, read through these options closely to help you determine the factors that do or do not concern you, and which would make the most sense in your situation.
- What is the Difference Between Per Capita, Per Stirpes and Per Capita with Representation Distributions (www.texaswillsandtrustslaw.com)
- Dying Intestate (www.mystatewill.com)
- One Small Latin Phrase Can Turn Your Heirs Into Mad Men (or Women) (kyestates.com)