Thursday, January 24, 2013

Statutory Distributions Under a Will, Part 2

     On Tuesday, we addressed the provisions of the Estates and Protected Individuals Code (EPIC) that establish allowances for surviving spouses and dependents that take precedence over other creditors’ claims against the probate estate. We also addressed a surviving spouse’s right under Michigan law to elect a statutorily mandated portion of the probate estate in lieu of the distribution scheme articulated in the decedent’s Will. Both of these statutorily created exceptions to the distribution provisions of a Will come as a result of legislature’s desire to ensure that surviving spouses are not left destitute upon the death of their spouse because the spouse "disinherited" them. Today's blog takes a further look at EPIC’s statutory provisions, this time regarding the distribution of the probate estate when a decedent dies "intestate" (without executing a Will) and when the decedent marries or has children following the execution of the Will. Clients are frequently surprised that the statute provides very different distribution provisions for family members than they would actually want. 
     The State statute determines intestate distribution of an estate, and the distributions vary depending on who survives the decedent. Different provisions of the law apply to surviving spouses, surviving dependents, and other surviving relatives. In determining intestate distribution, EPIC first addresses the decedent’s surviving spouse. Presuming that there is a surviving spouse, the share distributed to that individual is dependent on the decedent’s other surviving relatives. If the decedent is survived by a spouse but no parents or descendants, the spouse receives the entire estate. The share for the surviving spouse decreases when the decedent is survived by either parents or descendants (typically children or grandchildren). Tuesday's post details the variety of circumstances and values for the surviving spouse's distribution in the circumstances. 
     When a spouse does not survive the decedent, EPIC provides that the descendants (children, grandchildren, etc.) split the estate by "right of representation". Under Michigan law, "right of representation" means that the estate is divided per capita at each generation. This means that if the decedent had three children who are all alive at his death then the estate is split into three equal shares and distributed to those children. If, however, only one of the decedent’s three children remains alive at his death, the living child still receives a one-third share of the estate while the shares for the two deceased children are recombined and then divided equally between all the children of the deceased children. For example, if children A, B and C are all alive, and the estate is $900,000, they each receive $300,000 of the estate. If B and C have predeceased the decedent, and B has two children and C has five children, each of those children of a predeceased child will receive 1/7 of 600,000, or approximately $85,000. B's children receive a total of $170,000 (rather than splitting $300,000) and C's children received a total of $430,000 (rather than splitting $300,000). If used, EPIC can dramatically skew estate distributions among family members. 
    If the decedent has neither spouse nor any living descendants, EPIC then distributes the estate to the survivor or survivors of the decedent's parents. If there are no surviving parents, the estate then passes to the decedent’s living siblings, followed by living grandparents, then to living descendants of grandparents. If none of these potential beneficiaries are alive, the probate estate escheats (is distributed) to the State of Michigan. 
     A different rule applies if the decedent has executed a Will at some point in their life, but never updates the document after being married or having children. Michigan law provides in that case, that a surviving spouse is entitled to the share they would receive had the decedent died intestate, unless from the Will or other evidence it is clear that the Will was made in contemplation of the marriage and the spouse was purposefully omitted, in which case the surviving spouse receives nothing. 
     Children omitted from a Will are treated similarly to an omitted spouse, but the omitted child's share is dependent on whether or not other children of the decedent were provided for in the Will. If the decedent had no living children when the Will was executed and did not provide for children, an afterborn child is entitled to a share equal to that they would receive had the decedent died intestate. If however the decedent had one or more living children when the Will was executed, the omitted afterborn child is entitled to a share that is equal to the share for the non-omitted children. As with an omitted spouse, if the decedent’s Will provides clear evidence that the omission was intentional, the omitted afterborn child receives nothing 
     As this week's discussion of the probate statutes demonstrates, EPIC may provide for estate distributions significantly different from what the decedent might have provided for if the decedent had planned. Thankfully, proper planning protects loved ones and insures against accidentally disinheritance. Appropriately drafted documents can ensure that the spouse and descendants receive the share of an estate that the deceased spouse or parent actually wanted rather than what a state statute provides for. A client can avoid the probate process entirely by executing and properly funding a living trust guaranteeing that their assets are distributed to those people and institutions that are named in the trust document.

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