Anti-Lapse and Trust Termination

Does Tennessee’s anti-lapse statute apply when the remainder beneficiary of a trust dies before the trust terminates? No.

Tennessee’s anti-lapse statute is a savings clause for bequests. It states:

Whenever the devisee or legatee or any member of a class to which an immediate devise or bequest is made, dies before the testator, or is dead at the making of the will, leaving issue that survives the testator, the issue shall take the estate or interest devised or bequeathed that the devisee or legatee or the member of the class, as the case may be, would have taken, had that person survived the testator, unless a different disposition thereof is made or required by the will.

Therefore, if the beneficiary of a will predeceases the testator, his bequest will not automatically fail. Instead, the anti-lapse statute will cause the bequest to pass to his “issue” (i.e., descendants) absent a contrary direction in the will. The same rule applies for bequests made via revocable trusts.

For example, a will says, “I give the sum of $10,000 to Jane.” Jane does not survive the testator. She leaves behind two children who do survive the testator. According to the anti-lapse statute, Jane’s children will receive $5,000 each in this scenario.

Alternatively, imagine that the will said, “I give the sum of $10,000 to Jane, if she survives me.” In that case, Jane’s children would receive nothing, and the bequest would lapse.

Now assume that Jane’s bequest comes after the termination of a trust interest. For instance, the will establishes a trust for the testator’s wife for her life. Upon wife’s death, the trustee is directed to “distribute the trust estate to Jane, outright and free of trust.” What is the result if Jane is not then living? 

Based on the concepts discussed above, it would seem that Jane’s interest should pass to her children. Note, however, that the anti-lapse statute refers only to an “immediate devise or bequest.” So long as wife survives the testator, Jane’s bequest is delayed until wife dies. Because Jane’s bequest is not “immediate,” the anti-lapse statute does not apply.

So what happens to Jane’s interest? It is not entirely clear. Her interest in the trust could be construed as a contingent remainder, in which case her right to receive the trust estate would be contingent on her being alive at wife’s death. Or, her interest could be construed as a vested remainder, in which case she would be entitled to the trust estate at wife’s death regardless of whether she is then living. The law, however, favors vesting. Therefore, unless the trust language provided clear evidence that the testator intended a different result, the trust estate would almost certainly pass to Jane’s estate. In that case, the recipients would be the beneficiaries under her will, if any, otherwise her heirs at law. 

Questions about who should take can be avoided by good drafting.  Specify whether someone’s interest is contingent upon surviving. If so, provide an alternate disposition. Don’t leave matters to chance. The results can be devastating.

Source: T.C.A. § 32-3-105

Posted by Joel D. Roettger, JD, LLM, EPLS

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