SECTION 2-706. LIFE INSURANCE; RETIREMENT PLAN; ACCOUNT WITH
POD DESIGNATION; TRANSFER-ON-DEATH REGISTRATION; DECEASED
BENEFICIARY.
(a) [Definitions.] In this section:
(1) “Alternative beneficiary designation” means a beneficiary designation that is
expressly created by the governing instrument and, under the terms of the governing instrument, can take effect instead of another beneficiary designation on the happening of one or more events, including survival of the decedent or failure to survive the decedent, whether an event is expressed in condition-precedent, condition-subsequent, or any other form.
(2) “Beneficiary” means the beneficiary of a beneficiary designation under which the beneficiary must survive the decedent and includes (i) a class member if the beneficiary designation is in the form of a class gift and (ii) an individual or class member who was deceased at the time the beneficiary designation was executed as well as an individual or class member who was then living but who failed to survive the decedent, but excludes a joint tenant of a joint tenancy with the right of survivorship and a party to a joint and survivorship account.
(3) “Beneficiary designation” includes an alternative beneficiary designation and
(a) [Definitions.] In this section:
(1) “Alternative beneficiary designation” means a beneficiary designation that is
expressly created by the governing instrument and, under the terms of the governing instrument, can take effect instead of another beneficiary designation on the happening of one or more events, including survival of the decedent or failure to survive the decedent, whether an event is expressed in condition-precedent, condition-subsequent, or any other form.
(2) “Beneficiary” means the beneficiary of a beneficiary designation under which the beneficiary must survive the decedent and includes (i) a class member if the beneficiary designation is in the form of a class gift and (ii) an individual or class member who was deceased at the time the beneficiary designation was executed as well as an individual or class member who was then living but who failed to survive the decedent, but excludes a joint tenant of a joint tenancy with the right of survivorship and a party to a joint and survivorship account.
(3) “Beneficiary designation” includes an alternative beneficiary designation and
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a beneficiary designation in the form of a class gift.
(4) “Class member” includes an individual who fails to survive the decedent but
who would have taken under a beneficiary designation in the form of a class gift had he [or she] survived the decedent.
(5) “Descendant of a grandparent”, as used in subsection (b), means an individual who qualifies as a descendant of a grandparent of the decedent under the (i) rules of construction applicable to a class gift created in the decedent’s beneficiary designation if the beneficiary designation is in the form of a class gift or (ii) rules for intestate succession if the beneficiary designation is not in the form of a class gift.
(6) “Descendants”, as used in the phrase “surviving descendants” of a deceased beneficiary or class member in subsections (b)(1) and (2), mean the descendants of a deceased beneficiary or class member who would take under a class gift created in the beneficiary designation.
(7) “Stepchild” means a child of the decedent’s surviving, deceased, or former spouse, and not of the decedent.
(8) “Surviving”, in the phrase “surviving beneficiaries” or “surviving descendants”, means beneficiaries or descendants who neither predeceased the decedent nor are deemed to have predeceased the decedent under Section 2-702.
(b) [Substitute Gift.] If a beneficiary fails to survive the decedent and is a grandparent, a descendant of a grandparent, or a stepchild of the decedent, the following apply:
(1) Except as provided in paragraph (4), if the beneficiary designation is not in the form of a class gift and the deceased beneficiary leaves surviving descendants, a substitute gift is created in the beneficiary’s surviving descendants. They take by representation the property to
(4) “Class member” includes an individual who fails to survive the decedent but
who would have taken under a beneficiary designation in the form of a class gift had he [or she] survived the decedent.
(5) “Descendant of a grandparent”, as used in subsection (b), means an individual who qualifies as a descendant of a grandparent of the decedent under the (i) rules of construction applicable to a class gift created in the decedent’s beneficiary designation if the beneficiary designation is in the form of a class gift or (ii) rules for intestate succession if the beneficiary designation is not in the form of a class gift.
(6) “Descendants”, as used in the phrase “surviving descendants” of a deceased beneficiary or class member in subsections (b)(1) and (2), mean the descendants of a deceased beneficiary or class member who would take under a class gift created in the beneficiary designation.
(7) “Stepchild” means a child of the decedent’s surviving, deceased, or former spouse, and not of the decedent.
(8) “Surviving”, in the phrase “surviving beneficiaries” or “surviving descendants”, means beneficiaries or descendants who neither predeceased the decedent nor are deemed to have predeceased the decedent under Section 2-702.
(b) [Substitute Gift.] If a beneficiary fails to survive the decedent and is a grandparent, a descendant of a grandparent, or a stepchild of the decedent, the following apply:
(1) Except as provided in paragraph (4), if the beneficiary designation is not in the form of a class gift and the deceased beneficiary leaves surviving descendants, a substitute gift is created in the beneficiary’s surviving descendants. They take by representation the property to
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which the beneficiary would have been entitled had the beneficiary survived the decedent.
(2) Except as provided in paragraph (4), if the beneficiary designation is in the
form of a class gift, other than a beneficiary designation to “issue,” “descendants,” “heirs of the body,” “heirs,” “next of kin,” “relatives,” or “family,” or a class described by language of similar import, a substitute gift is created in the surviving descendants of any deceased beneficiary. The property to which the beneficiaries would have been entitled had all of them survived the decedent passes to the surviving beneficiaries and the surviving descendants of the deceased beneficiaries. Each surviving beneficiary takes the share to which he [or she] would have been entitled had the deceased beneficiaries survived the decedent. Each deceased beneficiary’s surviving descendants who are substituted for the deceased beneficiary take by representation the share to which the deceased beneficiary would have been entitled had the deceased beneficiary survived the decedent. For the purposes of this paragraph, “deceased beneficiary” means a class member who failed to survive the decedent and left one or more surviving descendants.
(3) For the purposes of Section 2-701, words of survivorship, such as in a beneficiary designation to an individual “if he survives me,” or in a beneficiary designation to “my surviving children,” are not, in the absence of additional evidence, a sufficient indication of an intent contrary to the application of this section.
(4) If a governing instrument creates an alternative beneficiary designation with respect to a beneficiary designation for which a substitute gift is created by paragraph (1) or (2), the substitute gift is superseded by the alternative beneficiary designation if:
(A) the alternative beneficiary designation is in the form of a class gift and one or more members of the class is entitled to take; or
(B) the alternative beneficiary designation is not in the form of a class gift
form of a class gift, other than a beneficiary designation to “issue,” “descendants,” “heirs of the body,” “heirs,” “next of kin,” “relatives,” or “family,” or a class described by language of similar import, a substitute gift is created in the surviving descendants of any deceased beneficiary. The property to which the beneficiaries would have been entitled had all of them survived the decedent passes to the surviving beneficiaries and the surviving descendants of the deceased beneficiaries. Each surviving beneficiary takes the share to which he [or she] would have been entitled had the deceased beneficiaries survived the decedent. Each deceased beneficiary’s surviving descendants who are substituted for the deceased beneficiary take by representation the share to which the deceased beneficiary would have been entitled had the deceased beneficiary survived the decedent. For the purposes of this paragraph, “deceased beneficiary” means a class member who failed to survive the decedent and left one or more surviving descendants.
(3) For the purposes of Section 2-701, words of survivorship, such as in a beneficiary designation to an individual “if he survives me,” or in a beneficiary designation to “my surviving children,” are not, in the absence of additional evidence, a sufficient indication of an intent contrary to the application of this section.
(4) If a governing instrument creates an alternative beneficiary designation with respect to a beneficiary designation for which a substitute gift is created by paragraph (1) or (2), the substitute gift is superseded by the alternative beneficiary designation if:
(A) the alternative beneficiary designation is in the form of a class gift and one or more members of the class is entitled to take; or
(B) the alternative beneficiary designation is not in the form of a class gift
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and the expressly designated beneficiary of the alternative beneficiary designation is entitled to
take.
(c) [More Than One Substitute Gift; Which One Takes.] If, under subsection (b), substitute gifts are created and not superseded with respect to more than one beneficiary designation and the beneficiary designations are alternative beneficiary designations, one to the other, the determination of which of the substitute gifts takes effect is resolved as follows:
(1) Except as provided in paragraph (2), the property passes under the primary substitute gift.
(2) If there is a younger-generation beneficiary designation, the property passes under the younger-generation substitute gift and not under the primary substitute gift.
(3) In this subsection:
(A) “Primary beneficiary designation” means the beneficiary designation
that would have taken effect had all the deceased beneficiaries of the alternative beneficiary designations who left surviving descendants survived the decedent.
(B) “Primary substitute gift” means the substitute gift created with respect to the primary beneficiary designation.
(C) “Younger-generation beneficiary designation” means a beneficiary designation that (i) is to a descendant of a beneficiary of the primary beneficiary designation, (ii) is an alternative beneficiary designation with respect to the primary beneficiary designation, (iii) is a beneficiary designation for which a substitute gift is created, and (iv) would have taken effect had all the deceased beneficiaries who left surviving descendants survived the decedent except the deceased beneficiary or beneficiaries of the primary beneficiary designation.
(D) “Younger-generation substitute gift” means the substitute gift created
(c) [More Than One Substitute Gift; Which One Takes.] If, under subsection (b), substitute gifts are created and not superseded with respect to more than one beneficiary designation and the beneficiary designations are alternative beneficiary designations, one to the other, the determination of which of the substitute gifts takes effect is resolved as follows:
(1) Except as provided in paragraph (2), the property passes under the primary substitute gift.
(2) If there is a younger-generation beneficiary designation, the property passes under the younger-generation substitute gift and not under the primary substitute gift.
(3) In this subsection:
(A) “Primary beneficiary designation” means the beneficiary designation
that would have taken effect had all the deceased beneficiaries of the alternative beneficiary designations who left surviving descendants survived the decedent.
(B) “Primary substitute gift” means the substitute gift created with respect to the primary beneficiary designation.
(C) “Younger-generation beneficiary designation” means a beneficiary designation that (i) is to a descendant of a beneficiary of the primary beneficiary designation, (ii) is an alternative beneficiary designation with respect to the primary beneficiary designation, (iii) is a beneficiary designation for which a substitute gift is created, and (iv) would have taken effect had all the deceased beneficiaries who left surviving descendants survived the decedent except the deceased beneficiary or beneficiaries of the primary beneficiary designation.
(D) “Younger-generation substitute gift” means the substitute gift created
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with respect to the younger-generation beneficiary designation.
(d) [Protection of Payors.]
(1) A payor is protected from liability in making payments under the terms of the beneficiary designation until the payor has received written notice of a claim to a substitute gift under this section. Payment made before the receipt of written notice of a claim to a substitute gift under this section discharges the payor, but not the recipient, from all claims for the amounts paid. A payor is liable for a payment made after the payor has received written notice of the claim. A recipient is liable for a payment received, whether or not written notice of the claim is given.
(2) The written notice of the claim must be mailed to the payor’s main office or home by registered or certified mail, return receipt requested, or served upon the payor in the same manner as a summons in a civil action. Upon receipt of written notice of the claim, a payor may pay any amount owed by it to the court having jurisdiction of the probate proceedings relating to the decedent’s estate or, if no proceedings have been commenced, to the court having jurisdiction of probate proceedings relating to decedents’ estates located in the county of the decedent’s residence. The court shall hold the funds and, upon its determination under this section, shall order disbursement in accordance with the determination. Payment made to the court discharges the payor from all claims for the amounts paid.
(e) [Protection of Bona Fide Purchasers; Personal Liability of Recipient.]
(1) A person who purchases property for value and without notice, or who
receives a payment or other item of property in partial or full satisfaction of a legally enforceable obligation, is neither obligated under this section to return the payment, item of property, or benefit nor is liable under this section for the amount of the payment or the value of the item of
(1) A payor is protected from liability in making payments under the terms of the beneficiary designation until the payor has received written notice of a claim to a substitute gift under this section. Payment made before the receipt of written notice of a claim to a substitute gift under this section discharges the payor, but not the recipient, from all claims for the amounts paid. A payor is liable for a payment made after the payor has received written notice of the claim. A recipient is liable for a payment received, whether or not written notice of the claim is given.
(2) The written notice of the claim must be mailed to the payor’s main office or home by registered or certified mail, return receipt requested, or served upon the payor in the same manner as a summons in a civil action. Upon receipt of written notice of the claim, a payor may pay any amount owed by it to the court having jurisdiction of the probate proceedings relating to the decedent’s estate or, if no proceedings have been commenced, to the court having jurisdiction of probate proceedings relating to decedents’ estates located in the county of the decedent’s residence. The court shall hold the funds and, upon its determination under this section, shall order disbursement in accordance with the determination. Payment made to the court discharges the payor from all claims for the amounts paid.
(e) [Protection of Bona Fide Purchasers; Personal Liability of Recipient.]
(1) A person who purchases property for value and without notice, or who
receives a payment or other item of property in partial or full satisfaction of a legally enforceable obligation, is neither obligated under this section to return the payment, item of property, or benefit nor is liable under this section for the amount of the payment or the value of the item of
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property or benefit. But a person who, not for value, receives a payment, item of property, or
any other benefit to which the person is not entitled under this section is obligated to return the
payment, item of property, or benefit, or is personally liable for the amount of the payment or the
value of the item of property or benefit, to the person who is entitled to it under this section.
(2) If this section or any part of this section is preempted by federal law with respect to a payment, an item of property, or any other benefit covered by this section, a person who, not for value, receives the payment, item of property, or any other benefit to which the person is not entitled under this section is obligated to return the payment, item of property, or benefit, or is personally liable for the amount of the payment or the value of the item of property or benefit, to the person who would have been entitled to it were this section or part of this section not preempted.
Comment
Purpose. This section provides an antilapse statute for “beneficiary designations” under which the beneficiary must survive the decedent. The term “beneficiary designation” is defined in Section 1-201 as “a governing instrument naming a beneficiary of an insurance or annuity policy, of an account with POD designation, of a security registered in beneficiary form (TOD), or of a pension, profit-sharing, retirement, or similar benefit plan, or other nonprobate transfer at death.”
The terms of this section parallel those of Section 2-603, except that the provisions relating to payor protection and personal liability of recipients have been added. The Comment to Section 2-603 contains an elaborate exposition of Section 2-603, together with examples illustrating its application. That Comment, in addition to the examples given below, should aid understanding of Section 2-706. For a discussion of the reasons why Section 2-706 should not be preempted by federal law with respect to retirement plans covered by ERISA, see the Comment to Section 2-804. See also Rayho, Note, 106 Mich. L. Rev. 373 (2007).
Example 1. G is the owner of a life-insurance policy. When the policy was taken out, G was married to S; G and S had two young children, A and B. G died 45 years after the policy was taken out. S predeceased G, A survived G by 120 hours and B predeceased G leaving three children (X, Y, and Z) who survived G by 120 hours. G’s policy names S as the primary beneficiary of the policy, but because S predeceased G, the secondary (contingent) beneficiary designation became operative. The secondary (contingent) beneficiary designation of G’s policy states: “equally to the then living children born of the marriage of G and S.”
(2) If this section or any part of this section is preempted by federal law with respect to a payment, an item of property, or any other benefit covered by this section, a person who, not for value, receives the payment, item of property, or any other benefit to which the person is not entitled under this section is obligated to return the payment, item of property, or benefit, or is personally liable for the amount of the payment or the value of the item of property or benefit, to the person who would have been entitled to it were this section or part of this section not preempted.
Comment
Purpose. This section provides an antilapse statute for “beneficiary designations” under which the beneficiary must survive the decedent. The term “beneficiary designation” is defined in Section 1-201 as “a governing instrument naming a beneficiary of an insurance or annuity policy, of an account with POD designation, of a security registered in beneficiary form (TOD), or of a pension, profit-sharing, retirement, or similar benefit plan, or other nonprobate transfer at death.”
The terms of this section parallel those of Section 2-603, except that the provisions relating to payor protection and personal liability of recipients have been added. The Comment to Section 2-603 contains an elaborate exposition of Section 2-603, together with examples illustrating its application. That Comment, in addition to the examples given below, should aid understanding of Section 2-706. For a discussion of the reasons why Section 2-706 should not be preempted by federal law with respect to retirement plans covered by ERISA, see the Comment to Section 2-804. See also Rayho, Note, 106 Mich. L. Rev. 373 (2007).
Example 1. G is the owner of a life-insurance policy. When the policy was taken out, G was married to S; G and S had two young children, A and B. G died 45 years after the policy was taken out. S predeceased G, A survived G by 120 hours and B predeceased G leaving three children (X, Y, and Z) who survived G by 120 hours. G’s policy names S as the primary beneficiary of the policy, but because S predeceased G, the secondary (contingent) beneficiary designation became operative. The secondary (contingent) beneficiary designation of G’s policy states: “equally to the then living children born of the marriage of G and S.”
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The printed terms of G’s policy provide:
“If two or more persons are designated as beneficiary, the beneficiary will be the designated person or persons who survive the Insured, and if more than one survive, they will share equally.”
Solution: The printed clause constitutes an “alternative beneficiary designation” for purposes of subsection (b)(4), which supersedes the substitute gift to B’s descendants created by subsection (b)(2). A is entitled to all of the proceeds of the policy.
Example 2. The facts are the same as in Example 1, except that G’s policy names “A and B” as secondary (contingent) beneficiaries. The printed terms of the policy provide:
“If any designated Beneficiary predeceases the Insured, the interest of such Beneficiary will terminate and shall be shared equally by such of the Beneficiaries as survive the Insured.”
Solution: The printed clause constitutes an ‘alternative beneficiary designation’ for purposes of subsection (b)(4), which supersedes the substitute gift to B’s descendants created by subsection (b)(1). A is entitled to all of the proceeds of the policy.
Example 3. The facts are the same as Examples 1 or 2, except that the printed terms of the policy do not contain either quoted clause or a similar one.
Solution: Under Section 2-706, A would be entitled to half of the policy proceeds and X, Y, and Z would divide the other half equally.
Example 4. The facts are the same as Example 3, except that the policy has a beneficiary designation that provides that, if the adjacent box is checked, the share of any deceased beneficiary shall be paid “in one sum and in equal shares to the children of that beneficiary who survive.” G did not check the box adjacent to this option.
Solution: G’s deliberate decision not to check the box providing for the share of any deceased beneficiary to go to that beneficiary’s children constitutes a clear indication of a contrary intention for purposes of Section 2-701. A would be entitled to all of the proceeds of the policy.
Example 5. G’s life-insurance policy names her niece, A, as primary beneficiary, and provides that if A does not survive her, the proceeds are to go to her niece B, as contingent beneficiary. A predeceased G, leaving children who survived G by 120 hours, B survived G by 120 hours.
Solution: The contingent beneficiary designation constitutes an “alternative beneficiary designation” for purposes of subsection (b)(4), which supersedes the substitute gift to A’s descendants created by subsection (b)(1). The proceeds go to B, not to A’s children.
“If two or more persons are designated as beneficiary, the beneficiary will be the designated person or persons who survive the Insured, and if more than one survive, they will share equally.”
Solution: The printed clause constitutes an “alternative beneficiary designation” for purposes of subsection (b)(4), which supersedes the substitute gift to B’s descendants created by subsection (b)(2). A is entitled to all of the proceeds of the policy.
Example 2. The facts are the same as in Example 1, except that G’s policy names “A and B” as secondary (contingent) beneficiaries. The printed terms of the policy provide:
“If any designated Beneficiary predeceases the Insured, the interest of such Beneficiary will terminate and shall be shared equally by such of the Beneficiaries as survive the Insured.”
Solution: The printed clause constitutes an ‘alternative beneficiary designation’ for purposes of subsection (b)(4), which supersedes the substitute gift to B’s descendants created by subsection (b)(1). A is entitled to all of the proceeds of the policy.
Example 3. The facts are the same as Examples 1 or 2, except that the printed terms of the policy do not contain either quoted clause or a similar one.
Solution: Under Section 2-706, A would be entitled to half of the policy proceeds and X, Y, and Z would divide the other half equally.
Example 4. The facts are the same as Example 3, except that the policy has a beneficiary designation that provides that, if the adjacent box is checked, the share of any deceased beneficiary shall be paid “in one sum and in equal shares to the children of that beneficiary who survive.” G did not check the box adjacent to this option.
Solution: G’s deliberate decision not to check the box providing for the share of any deceased beneficiary to go to that beneficiary’s children constitutes a clear indication of a contrary intention for purposes of Section 2-701. A would be entitled to all of the proceeds of the policy.
Example 5. G’s life-insurance policy names her niece, A, as primary beneficiary, and provides that if A does not survive her, the proceeds are to go to her niece B, as contingent beneficiary. A predeceased G, leaving children who survived G by 120 hours, B survived G by 120 hours.
Solution: The contingent beneficiary designation constitutes an “alternative beneficiary designation” for purposes of subsection (b)(4), which supersedes the substitute gift to A’s descendants created by subsection (b)(1). The proceeds go to B, not to A’s children.
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Example 6. G’s life-insurance policy names her niece, A, as primary beneficiary, and
provides that if A does not survive her, the proceeds are to go to her niece B, as contingent
beneficiary. The printed terms of the policy specifically state that if neither the primary nor
secondary beneficiaries survive the policyholder, the proceeds are payable to the policyholder’s
estate. A predeceased G, leaving children who survived G by 120 hours, B also predeceased G,
leaving children who survived G by 120 hours.
Solution: The second contingent beneficiary designation to G’s estate constitutes an “alternative beneficiary designation” for purposes of subsection (b)(4), which supersedes the substitute gifts to A’s and B’s descendants created by subsection (b)(1). The proceeds go to G’s estate, not to A’s children or to B’s children.
References. This section is discussed in Halbach & Waggoner, “The UPC’s New Survivorship and Antilapse Provisions,” 55 Alb. L. Rev. 1091 (1992). See also Restatement (Third) of Property: Wills and Other Donative Transfers § 5.5 cmt. p (1999); § 7.2 cmt. k (2003); Lebolt, “Making the Best of Egelhoff, Federal Common Law for ERISA-Preempted Beneficiary Designations”, 28 J. Pension Planning & Compliance 29 (Fall 2002); Gallanis, “ERISA and the Law of Succession”, 60 Ohio St. L. J. 185 (2004); Rayho, Note, 106 Mich. L. Rev. 373 (2007).
Technical Amendments. Technical amendments in 1993 added language specifically excluding joint and survivorship accounts and joint tenancies with the right of survivorship; this amendment is consistent with the original purpose of the section. Technical amendments in 2008 added definitions of “descendant of a grandparent” and “descendants” as used in subsections (b)(1) and (2) and clarified subsection (b)(4). The two new definitions resolve questions of status previously unanswered. The technical amendment of subsection (b)(4) makes that subsection easier to understand but does not change its substance.
Historical Note. This Comment was revised in 1993 and 2008.
Solution: The second contingent beneficiary designation to G’s estate constitutes an “alternative beneficiary designation” for purposes of subsection (b)(4), which supersedes the substitute gifts to A’s and B’s descendants created by subsection (b)(1). The proceeds go to G’s estate, not to A’s children or to B’s children.
References. This section is discussed in Halbach & Waggoner, “The UPC’s New Survivorship and Antilapse Provisions,” 55 Alb. L. Rev. 1091 (1992). See also Restatement (Third) of Property: Wills and Other Donative Transfers § 5.5 cmt. p (1999); § 7.2 cmt. k (2003); Lebolt, “Making the Best of Egelhoff, Federal Common Law for ERISA-Preempted Beneficiary Designations”, 28 J. Pension Planning & Compliance 29 (Fall 2002); Gallanis, “ERISA and the Law of Succession”, 60 Ohio St. L. J. 185 (2004); Rayho, Note, 106 Mich. L. Rev. 373 (2007).
Technical Amendments. Technical amendments in 1993 added language specifically excluding joint and survivorship accounts and joint tenancies with the right of survivorship; this amendment is consistent with the original purpose of the section. Technical amendments in 2008 added definitions of “descendant of a grandparent” and “descendants” as used in subsections (b)(1) and (2) and clarified subsection (b)(4). The two new definitions resolve questions of status previously unanswered. The technical amendment of subsection (b)(4) makes that subsection easier to understand but does not change its substance.
Historical Note. This Comment was revised in 1993 and 2008.
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