Can a Bequest to a Beneficiary Disappear?
by John Peart LL.B., CFP, TEP, CS
Occasionally, when speaking with clients about their wills, I am asked: What happens if the beneficiary set out in the will no longer exists (in the case of a charity) or dies before the deceased (in the case of an individual beneficiary)? My simple answer is:“it depends.”This does not help the discussion very much. As a result, I will explain.
Sometimes small charities or charities with a single purpose have relatively short lives. A person may support such a charity for many years and may wish to continue this support by a bequest in their Will. However, when the person (the “testator”) dies, the charity may be found to have been wound up or disbanded years before.
In cases dealing with bequests to charities that are no longer in existence, a legal doctrine called the “cy- près doctrine” would apply. Cy-près can be translated as “as near as possible.”The concept has existed for generations in common law jurisdictions and is accepted in Canada, most of the United States of America and in Great Britain.
The concept is that a bequest to a non-existent charity will not fail, but the executor must attempt to locate another charity with objects or purposes as close as possible to the non-existent charity. If such an alternative charity does exist and is willing to accept the bequest, the bequest in the Will is then satisfied. If no such alternative charity does exist, the bequest then lapses and forms part of the residue of the testator’s estate.
Due to its historical genesis as a remedy in English Law of Equity, the cy-près doctrine only applies to charities, and cannot be used in a non-charitable context.
I always caution executors to not be too adventurous in seeking out alternative charities in an attempt to satisfy the Will bequest. There has to be an obvious connection in the objects or purpose of both the non-existent charity and the proposed alternative beneficiary. In cases that are not clear, I recommend that executors obtain a court order approving the payment of the bequest to the alternative beneficiary — if only to prevent an attack from the residuary beneficiaries who may not have wanted the bequest to be paid out at all.
Non-charitable corporate beneficiaries
It is not that often that a bequest is left to a non- charitable corporate beneficiary, but if such a bequest is made in a Will and the non-charitable corporate beneficiary is no longer in existence, the bequest simply lapses and forms part of the residue of the testator’s estate.
The reason for this is that not only does the cy-près doctrine not apply, but, as well, a charity by its very nature has a specific set of objects or purposes. A non-charitable corporation, on the other hand, does not by its incorporating statute (either provincial or federal) need any specific set of objects, but rather can carry on almost any type of enterprise.
Individual (non-corporate) beneficiaries
Subject to the exceptions that I will outline below, a bequest to an individual beneficiary who is not alive at a testator’s death will lapse, and the bequest will again form part of the residue of the testator’s estate.
If the bequest to a deceased beneficiary contains any type of wording that would enable the executor to establish that an alternative person from the deceased beneficiary should receive the deceased beneficiary’s bequest, that will then satisfy the terms of the Will. Very often, a Will states that if a beneficiary should predecease the testator, the child/children of the deceased beneficiary will then inherit the bequest instead.
Often, lawyers will prepare Wills stating that a bequest shall be paid to a beneficiary “per stirpes” or “per capita.”This wording is legal short form to say that if the beneficiary has predeceased the testator,the children or grandchildren or issue of the deceased beneficiary will then share in the bequest,rather than have the gift lapse.
“Per Stirpes” is a Latin term meaning “by the branch.”This means that each branch of the family will receive an equal share. For example, if a beneficiary dies leaving children “B”,“C” and “D”, a bequest to that beneficiary “per stirpes” means that each of B, C and D will receive a one third equal share of the bequest. Moreover, if B has also died before the testator and has left two children:“B1” and “B2”, B1 and B2 will receive equal parts of B’s share of the bequest. If both B and D have died and left children: B1 and B2 (in the case of B); and D1 (in the case of D), then B1 and B2 will share equally in B’s share and D1 will receive D’s share.
“Per Capita” is also a Latin term and is a slightly different concept. In a per capita distribution, the heirs of the same generation will receive equal shares.
Using our family B, C and D again, if the bequest to the parent was “per capita,” and both B and D had predeceased, leaving B1 and B2 (in the case of B) and D1 (in the case of D), then a per capita distribution would mean that: • C would still receive his/her one third share because he/she was still alive at the testator’s death; • B1, B2 and D1 would share the remaining two thirds of the bequest equally as they are of the same generation — each would receive 2/9 of the bequest. In a per stirpes distribution, D1 would receive one third of the bequest, being the only child of D. Succession Law Reform Act If a bequest is not made “per stirpes” or “per capita” and the beneficiary predeceases the testator without other wording in the Will to allow the bequest to survive, then the bequest will normally lapse. Unless, that is, the provisions of Section 31 of the Succession Law Reform Act (“SLRA”) apply. Section 31 of the SLRA states that if a bequest is made to the testator’s child, grandchild, brother or sister who dies before the testator, and unless there is other wording in the Will to say something else, the spouse and children of the deceased child, grandchild, brother or sister will share in the bequest in accordance with the provisions of Section 31. Clearly, the answer to the question of what happens to a bequest if a beneficiary dies before the testator, is: “it depends.” To a large degree, the courts have done their utmost to prevent a bequest from lapsing. The legislators through Section 31 of the SLRA and similar legislation in other provinces have done the same. Who ultimately will receive the bequest, however, depends on the wording of the testator’s Will and a beneficiary’s family situation. ■
John Peart is a partner with the Ottawa law firm of Nelligan O’Brien Payne LLP and part of its Wills and Estates Group. John is Certified as a Specialist (CS) in Estates and Trusts Law by the Law Society of Upper Canada and is also a member of the International Society of Trust and Estates Practitioners.
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