A. 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 of this subsection, 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 which the beneficiary would have been entitled if the beneficiary had survived the decedent.
2. Except as provided in paragraph 4 of this subsection, 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 similar language, a substitute gift is created in the surviving descendants of any deceased beneficiary.
The property to which the beneficiaries would have been entitled if all of them had survived the decedent passes to the surviving beneficiaries and the surviving descendants of the deceased beneficiaries. Each surviving beneficiary takes the share to which that beneficiary would have been entitled if the deceased beneficiaries had 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 if the deceased beneficiary had survived the decedent. For the purposes of this paragraph, "deceased beneficiary" means a class member who failed to survive the decedent and who left one or more surviving descendants.
3. 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, in the absence of clear and convincing evidence to the contrary, 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designation for which a substitute gift is created by paragraph 1 or 2 of this subsection, the substitute gift is superseded by the alternative beneficiary designation, whether or not an expressly designated beneficiary of the alternative beneficiary designation is entitled to take.
B. 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.
C. The written notice of the claim must be mailed to the payor's main office or home by certified mail, return receipt requested, or served on the payor in the same manner as a summons in a civil action.
On 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 monies and, on 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.
D. 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 property or benefit.
However, a person who, not for value, receives a payment, an 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.
E. For the purposes of 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 and includes a class member if the beneficiary designation is in the form of a class gift and also includes a person or class member who was deceased at the time the beneficiary designation was executed as well as a person or class member who was then living but who failed to survive the decedent.
3. "Beneficiary designation" includes an alternative beneficiary designation and a beneficiary designation in the form of a class gift.
4. "Class member" includes a person who fails to survive the decedent but who would have taken under a beneficiary designation in the form of a class gift if that person had survived the decedent.
5. "Stepchild" means a child of the decedent's surviving, deceased or former spouse and not of the decedent.
6. "Surviving beneficiary" or "surviving descendant" means a beneficiary or a descendant who neither predeceased the decedent nor is deemed to have predeceased the decedent under section 14-2702.