Failed Testamentary Transfers

          When possible, California law prefers to avoid intestacy – that is, where all or a portion of a decedent’s estate goes to the decedent’s surviving heirs, and not to beneficiaries named under the decedent’s will or trust.  What happens then when gifts made in a testamentary instrument, such as a will or a trust, lapse (fail) because the beneficiary is either deceased or is deemed to be deceased (such as with an ex-spouse)?

          If the will names an alternative beneficiary the gift does not lapse but goes to the alternative beneficiary.  Naming alternative beneficiaries is the preferred approach used when drafting wills and trust.

          Otherwise, if the deceased beneficiary was either the decedent’s kindred or was kindred of the decedent’s surviving spouse, deceased spouse, or even former spouse — then California’s Anti-Lapse statute (section 21110(a) of the Probate Code) applies, unless a contrary intention is indicated.  Kindred includes a person’s blood relatives, adopted children, step children, and foster children.

          Under the Anti-Lapse statute, a gift to a deceased kindred beneficiary goes, by right of representation, to the kindred beneficiary’s own descendants.  The gift, “… is divided into as many equal shares as there are living members of the nearest generation of issue [i.e., descendants] then living and deceased members of that generation who leave issue [i.e., descendants] then living, … .”  The share of a deceased descendant of the kindred beneficiary may, if necessary, likewise be further divided by right of representation. 

          Consider a father who makes a gift to his daughter Alice.  Alice predeceases her father.  Alice herself has two surviving daughters and also two grandchildren from a predeceased son.  The father’s gift to his daughter Alice is divided by right of representation into three equal shares:  one share for each of Alice’s two surviving daughters and one share for Alice’s deceased son because he has two surviving children.  The share allocated to Alice’s deceased son is, therefore, divided equally between his children by right of representation at that generation.

          Next, when there is no alternative beneficiary to inherit and the Anti-lapse statute also does not apply the gift then becomes subject to any residuary clause. 

          A residuary clause says how the balance (remainder) of a decedent’s estate is distributed after any specific gifts of assets and monetary gifts are made.  It is also, unlike specific gifts and monetary gifts, first in line to be decreased by any debts and taxes to be paid from the estate.  When there are no specific or monetary gifts, the residuary clause distributes the decedent’s entire estate, and otherwise it distributes the remainder. 

          Consider a decedent’s will that leaves $20,000 to a close friend who predeceases him.  The Anti-lapse statue would not apply because the friend is not kindred.  The will, however, has a residuary clause giving the remainder of the estate to the decedent’s own children equally. It applies. 

          Recently, in Estate of Cheryl D. Stockbird, California’s Court of Appeal, First Appellate District, decided a dispute regarding the will of Cheryl Stockbird, deceased.  The will divided Ms. Stockbird’s estate as follows:  65% to her life partner and 35% to her aunt by marriage, who was not kindred (i.e., no Anti-Lapse statute).  The aunt predeceased her.  Cheryl Stockbird’s will, however, did not say what happened to the aunt’s 35% share.  Did it lapse and pass by intestacy to the decedent’s heir, or did it go to the decedent’s life partner as the sole residuary beneficiary? 

          The appellate Court applied California Probate Code section 21111(b):  If a gift in a residuary clause is made to a deceased beneficiary, and no alternative beneficiary is named, then, unless the Anti Lapse statute applies, the gift is divided proportionately amongst any other surviving residuary beneficiaries; based on the relative percentages of each beneficiary’s share in the estate.  The Court did not accept the heir’s contrary argument that the gift lapsed.

          The foregoing shows why updating one’s testamentary documents and naming alternative beneficiaries are necessary.  Unfortunately, by not naming alternative death beneficiaries, the handwritten will was deficient and otherwise avoidable litigation followed.