One Small Latin Phrase Can Turn Your Heirs Into Mad Men (and Women)

Image © AMC TV (*)

Mad Men Season 4 has ended, and we’re all trying to evaluate whether or not Megan is a good idea. That’s the truly significant question, but it’s a long time until Season 5 begins, which means that the T&E Community needs to get back to business as usual, even on a Sunday night like this Halloween Eve.  No more Sterling Cooper – time to get back to recent estate planning developments!

Suppose that clients Don and Betty have three children: Sally, Bobby, and Eugene.  Sally has one child, Bobby has two children, and Eugene has three children.

Don and Betty don’t really love each other very much any more, but they do love all their children equally, and all their grandchildren equally. Should their estate be distributed per capita, or per stirpes?

Let’s consider the different results under the two approaches if Sally and Eugene predecease Don and Betty, and Bobby survives them.

(Warning: the following review of the difference between per stirpes and per capita distributions may be entirely superfluous for many readers, but may be helpful to others.)

Under a strict per capita division, Don and Betty have seven living descendants: Sally’s child, Bobby and his two children, and Eugene’s three children.  If the survivor of Don and Betty leaves a $3.5 million estate, each descendant will receive $500,000.  Sounds fair, right? In one way, yes. Each person receives the same amount. Yet Sally’s branch of the family receives $500,000, Bobby’s branch receives $1.5 million, and Eugene’s branch receives $1.5 million. What’s fair about that? It’s almost as if Sally were being punished for having fewer children.

Compare the result above to a per stirpes division. Each branch of the family will receive approximately $1.16 million. That’s fair, one could say. And yet Sally’s child will receive $1.16 million, three times more than the $388,000 any other family member receives. What’s fair about that? It’s almost as if Eugene’s children were being punished for their father’s longevity and having a sibling.

Deciding what is fairer – per stirpes or per capita – is difficult. One hopes trust and estate lawyers explain the two options clearly, help clients understand the application of each option in their particular family context, and then accurately implement the client’s wishes.

Cheek et al. v. Love et al., __ Ky. App. ___ (2010) is a rara avis (a published Kentucky probate decision) that revisits just this ancient and difficult probate issue: per stirpes vs. per capita distributions from an estate.  Marion County is a long way from Manhattan, but here in Kentucky this one little Latin phrase turned out to create some very Mad Men.

Cheek is a case about constructing a will’s provisions for a per stirpes division of an estate. The will provided for the decedent’s children to take a life estate in certain agricultural property, and that “upon the death of the last of my children, all of my estate shall be sold and divided among my grandchildren, per stirpes.”

The decedent had twenty-one heirs when the last of his children died. The heirs were descended from five children: Wayne, Louise, Mae, Alvin, and Ray. Mae, Alvin, and Ray had only two children each. In contrast, Wayne had seven children, and Louise had six living children and two living grandchildren of a deceased child.  The estate was worth about $301,000 – not impossibly large, but large enough to matter.

The executor filed a declaratory rights action to determine the proper shares to which the heirs were entitled.  Predictably, the “small” families (favoring a per stirpes distribution) and the “large” families (favoring a per capita distribution) lawyered up on opposite sides, and each side filed a motion for summary judgment.

The Marion Circuit Court found that if the decedent’s “direction that his estate be divided among his grandchildren per stirpes is to be given any effect at all, it must be interpreted to mean that his estate must be divided among his grandchildren, by family, and not equally.”

Accordingly, it ordered that the estate be divided into 1/10 shares payable to each child of Mae, Alvin, and Ray (although the Appeals Court opinion, which is not final, seems to contain a typo about this division, referring to 1/20 shares), and 1/35 shares payable to each child of Wayne and Louise, and 1/70 shares payable to each grandchild of Louise.

On appeal, the Kentucky Court of Appeals applied the “polar star” rule of will interpretation, which:

…holds that in the absence of some illegality, the intention of the testator is controlling. To ascertain the testator’s intention, it is necessary to first examine the language of the instrument. If the language used is a reasonably clear expression of intent, then the inquiry need go no further.

The Appeals Court reviewed the will’s provision for a per stirpes distribution and concluded that “there is no ambiguity and that the [decedent] intended an unequal distribution when he included the legal term “per stirpes” after “my grandchildren.”

The appellants cited several Kentucky precedents to the effect that courts favor equality in the distribution of an estate – except where unequal distribution is clearly called for. The Appeals Court acknowledged this precedent, but decided that this precedent did not apply, because the will’s language established that the decedent intended an unequal division between his grandchildren.

The Appeals Court supported its conclusion by citing comment i to Section 28.1 of the Restatement (Second) of Property, Donative Transfers, which observes that:

If a gift is made to the “grandchildren” of a designated person “per stirpes,” the described class members stem from different children of the designated person. In such case, the words “per stirpes” suggest an initial division of the subject matter of the gift into shares, one share for the children of each child of the designated person, thereby overcoming the per capita division [otherwise called for as a default rule for class gifts]. In this situation, the words “per stirpes” having been given a meaning, that meaning should carry over to cause the share of a deceased class member to go to his or her descendants. Thus the words “per stirpes” have a double operation.

Based on this authority and its review of the will’s language, the Appeals Court held that the trial court had committed no error in its per stirpes/unequal division among the decedent’s heirs, and that the decedent’s children were the correct stirpital root for division of the estate.

It’s interesting to note that the decedent signed the will in 1958 by “making his mark” with an “X”. One can’t be sure, but this fact does suggest that the client himself didn’t know the difference between per capita and per stirpes. The attorney who drew the will is surely long since deceased himself, but one has to hope he took time with his client to explain the options for equal vs. unequal division, allowing the client to make an informed choice.

While we’re on the topic of Mad Men, consider briefly that the show had a wonderful moment lately on how not to do estate planning: a four-minute conversation with your lawyer after three drinks, saying “just make me a trust – just do it”, and that the screenwriters are setting up the ultimate blended family probate litigation battle of all time: Megan v. Betty v. Henry Francis v. Don. If you have seen other estate planning issues in Mad Men, let us know, because this is a topic well worth coverage in future posts.

On another note, readers, Election Day is coming. We’ll be updating our estate tax exemption forecasts, and otherwise evaluating the election’s effects on the future of the estate tax.  We’re looking forward to a busy, fun week.

(*) Fair use rationale for image above: critical discussion of the Mad Men television series. For detailed rationale, see here.

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