Parents shouldn’t ever have to bury their children, and everyone should keep their estate planning documents updated. Unfortunately, the former happens too often, and the latter not often enough. The result is that many people end up with an estate plan that names a beneficiary who has predeceased them.
A bequest that fails because the beneficiary died before the testator (maker of the will) is called a “lapsed gift.” A lapsed gift could end up in the hands of someone a testator would not have chosen, unless specific steps are taken to prevent that outcome. There are provisions in Michigan law to address lapsed gifts, but a better approach is to plan to prevent them through your estate plan.
Regularly reviewing and updating your will or trust is the best way to avoid lapsed gifts. But you must be sure that the language used in the document is actually effective to achieve your intended outcome. For example, many people leave their entire estate to their spouse. Realizing that a spouse might die before them, they often indicate that the estate should go to their children in equal shares. That’s fine as far as it goes. But what happens if one of the children predeceases the testator too?
That’s exactly what happened in the Michigan Court of Appeals case In re: Estate of Eugenie Dietrich. In her 1989 will, Mrs. Dietrich bequeathed her entire estate to her husband. In the event he predeceased her, she specified that the estate be left to her two sons, Peter and Johann, whom she named in the will, saying that the estate should be “divided between them in equal shares, share and share alike.”
Unfortunately, Johann also predeceased Mrs. Dietrich. After Mrs. Dietrich’s death in 2014, Peter argued that the alternate bequest to him and Johann constituted a “class gift.” As such, as the only surviving member of the class, Peter argued he was entitled to the entire estate. Johann’s surviving children, Renee and Racquel, argued that because Mrs. Dietrich named her sons as individuals in her will, she intended to make a gift to each son as individuals rather than as members of a class. Accordingly, they asserted, they should receive the share of the estate intended for their father.
The probate court ruled in favor of Renee and Racquel, and the Michigan Court of Appeals affirmed the decision in 2017. In making the decision, the court relied on the fact that the testator named her sons as individuals, not as a class, and in part on Michigan’s anti-lapse statute.
Michigan’s anti-lapse statute, MCL 700.2603, creates a presumption that a testator would want the descendants of certain family members to receive that family member’s share of the estate in the event the family member dies before the testator.
In other words, the anti-lapse statute allows the children of a deceased beneficiary to substitute for that beneficiary and inherit their late parent’s share of a bequest. The recipients of the “substitute gift” must be descendants of the testator. For example, in the Dietrich case, Renee and Racquel were the testator’s granddaughters and direct descendants.
The anti-lapse statute supported a just result in the Dietrich case, but the family was forced to take the matter to court to have the issue settled. A far better course of action is to avoid a dispute over a lapsed gift in the first place. The written opinion in Dietrich tells of the legal outcome of the case, but we can only imagine the toll the dispute took on the family.
As difficult as it may be to think about, it is critical to consider the possibility of one of your beneficiaries dying before you. Discuss this contingency with your estate planning attorney, as well as what you would want to happen. Your attorney may even raise some contingencies you hadn’t considered. Then he or she can ensure that your wishes are clearly spelled out in your will or trust.
While the anti-lapse statute tries to approximate what most people would want, it sometimes misses the mark. In our office, we encounter many clients who, for various reasons, would not want the anti-lapse statute to apply in the event that a beneficiary died before them.
Therefore, our firm does not typically rely upon the anti-lapse statute as a backstop for our clients. Instead, we draft our clients' estate planning documents to fully address all contingencies so that there is no lapse of the gift made in the will or trust. There is no need to rely on the statute, and no litigation among family members. We use precise language designed to avoid confusion and give effect to the wishes of our clients.
If one of your intended beneficiaries should pass away before you, remember to consult your attorney and update your will to reflect current circumstances. Your goal is not only to prevent the lapse of a gift, but to preserve harmony among those you leave behind.
If you have questions about preventing lapsed gifts through your estate plan, or Michigan’s anti-lapse statute, we invite you to contact our law office to schedule a consultation.