“Per stirpes” or “per capita” – you better know the difference
As you begin the process of establishing an estate plan, there are many important decisions you and your attorney will make. Arguably, one of the most important decisions involves identifying who will receive your estate assets and in what manner you want assets to pass when you die. Whether you create a revocable living trust, a last will and testament, or both, you should designate all beneficiaries who will receive distributions. Thoughtful and deliberate estate planning with a seasoned estate planning attorney also includes the contemplation of what happens to a specific beneficiary’s share if they predecease you.
Ensuring one’s wishes are carried out in transferring wealth to subsequent generations can be complex when a child dies before his or her parents. In this article, we examine the terms “per stirpes” and “per capita” and how every client should know the difference in order to create an effective estate plan.
As a new estate planning client, you have approached our law firm and decided that, if you are not survived by your spouse, you would like your assets to be distributed to your surviving descendants, (i.e., your children, grandchildren and great-grandchildren, etc.), commonly referred to as your “issue.” The term issue does not mean all heirs, but only the direct bloodline. A disposition to your issue is generally straightforward if all of your children survive you and you want to benefit them equally. But it becomes much more complicated when one or more children predeceases you. While a child or children are alive, issue refers only to them, but if they are deceased when our client dies, then it will apply to the next living generation unless there is language in the estate planning document that shows it specifically does not apply to them.
In some client matters, the process is relatively simple. For example, if you are the parent of one child and that child has one child, and you want to leave all of your assets to your child then to his or her child should they predecease you – in this scenario, your distribution wishes are relatively straightforward. But for situations where you have multiple beneficiaries or issue at the same level such as children, grandchildren, siblings, nieces, and nephews, etc., you must consider whether the distribution shall occur by “per stirpes” or “per capita” distribution.
Per stirpes is commonly translated as “by roots” or “by branch” in Latin. In the English translation, it is commonly referred to as “by representation” or “by right or representation” stipulating that should a beneficiary predecease the testator (the person who made a Will) the beneficiary’s share of the inheritance goes to that beneficiary’s heirs. While the term per stirpes is commonly used to refer to an individual’s assets under a Will, it may also be used in beneficiary designations for individual retirement accounts (IRAs).
An example for the use of per stirpes in estate planning documents is as follows: let’s say you have three adult children: Chris, Carter, and Cameron. You decide to leave your estate “to your descendants, per stirpes.” If all three of your children survive you, each child inherits one-third (1/3) of your estate. If Carter and Cameron survive you, but Chris does not, it is necessary to determine whether Chris had any descendants who survived you. If he did not have any living descendants, then Carter and Cameron each inherit one-half (1/2) of the estate. But, if Chris had two children who survived him (let’s call them Tim and Tom), pursuant to a per stirpes distribution, this is how your estate would pass: 1/3 to Carter and 1/3 to Cameron and 1/6 to Tim and 1/6 to Tom.
Per capita, in contrast, means assets will pass equally to the heirs who are living at the time of the death of the testator at the level stated. Two examples for the use of per capita in estate planning documents are as follows: (1) using the example aforementioned, if your estate was left “to my descendants, per capita” and you had five living grandchildren and no living children, then your estate would be distributed 1/5 to each grandchild regardless of who their parent was and regardless of how many siblings each grandchild has. (2) Imagine the same scenario but one of the client’s children is living and the other two are dead at the time of the client’s death. The three children were listed as primary beneficiaries per capita on the client’s $1 million retirement account. The entire $1 million inheritance would go to the then living child when the client passes. The grandchildren would be entitled to nothing.
While there is no “right” or “wrong” estate planning distribution theory, for some clients, per stirpes best reflects their wishes because it treats each of the original heirs equally. In that scenario, if one or more of your children predecease you leaving their own issue, that predeceased child’s share will pass down to his or her own issue. Maybe you are content with a per capita default option on the distribution of your assets, and if you are that is perfectly okay. But if you are not, now is the time to review this important designation and consider making a change. The “right” way to handle this situation depends on each client’s individual desires.
You will not live forever. If you want your assets to be inherited by the people of your own choosing, there are important steps you must take today before it is too late. As dark and dreary as it might seem, planning for your death is a thoughtful exercise that may minimize stress on your family when you die.
Todd Miller is a monthly contributor and regularly writes and speaks on various legal topics including bankruptcy, estate planning, probate, and elder law. He formed the Law Office of Todd Miller, LLC, 1305 Southwest Blvd., Ste. A, Jefferson City, Missouri in 2006. He has been awarded the Substantial Contributor Attorney Award by the Missouri Bar and ranked as one of the “Top Attorneys in Missouri” by The Legal Network. Mr. Miller earned his juris doctorate degree from the University of Missouri School of Law in 1999 and graduated with honors from Lincoln University in 1991. You may find him at www.toddmillerlaw.com (573) 634-2838 or on Facebook, Instagram, and Twitter.