The Per Stirpes Distribution Default Rule: An Illustration

It is sadly not uncommon enough in the United States for a parent to outlive their child–a tragedy that befalls approximately 8% of families. I have been reviewing recent state law decisions, and I have encountered a few instances in which the estate planning documents for an individual that were prepared before the death of the child.

A per stirpes distribution occurs when the children of the deceased beneficiary stand in the shoes of that deceased beneficiary to receive the share that the deceased beneficiary would have received if he had remained alive. This default rule assumes that the deceased beneficiary still receives a share to be equally divided among any of his surviving children, and if no surviving children, then surviving grandchildren.

Illustration: Joe prepares a Last Will and Testament that calls for his 2018 Porsche 944, valued at $100,000, to be sold and distributed among his three children–John, Mark, and Luke. John has two children, Philip and Thomas.

John dies, and then Joe dies without rewriting his Will. How are the $100,000 proceeds from the Porsche distributed?

In 42 states, the default rule for inheritances directed at lineal descendants is to see if there are any lineal descendants of John that can serve as a placeholder to stand in his shoes and receive his portion.

In our case, Mark and John would each receive $33,333.33, while Philip and Thomas would each get $16,666.67.

If we changed the facts, such that John never had any children, then Mark and Luke would each split the $50,000.

Or, if we changed the fact so that John was a close friend (but not a lineal descendant), there is no state law anywhere that would permit John’s children to stand in his place.

It is important to remember that this method of distribution only exists as a default rule in the event that a lineal descendant beneficiary predeceases the drafter of the instrument. In a will, you can opt out of these default rules by specifying what you want to happen in the event that one of your beneficiaries predeceases you. Default rules only exist as a proxy in the case of your specific instruction.

The same holds true for deeds. If you execute a beneficiary deed to transfer your real estate upon your death so that it may sidestep probate administration, you can state “NO LDPS” in the deed in the event that you want to opt out of the per stirpes distribution default rule.

To continue with the above illustration, imagine that Joe had a $100,000 parcel of real estate instead of the Porsche. If he executes a beneficiary deed that states “Joe grants to John, Mark, and Luke” on the deed, Philip and Thomas will get to split the portion of John’s share. If, however, Joe executes a beneficiary deed that states “Joe grants to John, Mark, and Luke NO LDPS”, then John’s predeceasing of Joe would mean that John and Mark would get to split the property equally.

Of course, the types of people who read blogs like this likely have detailed estate planning instruments that do not rely upon the default rules of the state for deciding distribution. I suppose, then, that this per stirpes article is most relevant for the financially savvy child who has had a sibling predecease a parent, and may want to make their parents aware of the default rules that the state relies upon in these types of scenarios to confirm intentions.

Originally posted 2018-11-02 01:20:02.

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