When drafting your Will or Living Trust, are you concerned that you might unintentionally prevent one of your favorite family members from obtaining their inheritance? Or perhaps there is a relative you wouldn’t want to inherit anything from your estate. Would you be concerned about including them by mistake? If you don’t make the right decision while drafting your Will or Living Trust regarding how to divide your estate (money, property, and assets), both outcomes are feasible.
When drafting these documents with your attorney, you will name the beneficiaries who will receive property though these legal documents. In fact, you may be asked to take things a step further by stipulating whether these named beneficiaries will inherit these assets through a Per Capita or Per Stirpes distribution. Often, the decision between Per Stirpes vs. Per Capita can be confusing, and can have very different effects in terms of who inherits your estate. So, what’s the difference?
What is a Per Capita Designation?
Per Capita is a Latin term that translates to “by head.” Each designated beneficiary under a per capita designation is only entitled to their share of an inheritance if they are still alive at the time the testator of a will or the grantor of a trust passes away. If a designated beneficiary predeceases the testator of the will or the grantor of the trust, that named beneficiary’s share of inheritance is divided amongst the surviving named beneficiaries. Unless specifically named as beneficiaries within the estate documents, descendants (such as children or grandchildren) of the deceased beneficiary would not receive anything. It is important to note that per capita is typically the default option for beneficiaries on retirement accounts.
Example of Per Capita Distributions:
As an example, let’s consider a will that designates a per capita distribution equally among the testator’s three children upon her death. Our testator is named Jane, and let’s assume her three children are Allie, Ben, and Carl. Allie has two children: Alex and Ann. Ben and Carl have no children, and neither do Alex and Ann at this time. If all three of Jane’s children survive her, upon her death, Allie, Ben, and Carl will all receive equal shares of one-third each of her estate. However, if Allie were to predecease her mother, upon Jane’s passing, her two surviving children, Ben and Carl, would each receive half of the estate. Under the per capita distribution election, Jane’s grandchildren Alex and Ann would not inherit their mother’s share of the estate.
What is a Per Stirpes Designation?
Per Stirpes is a Latin term that translates to “by branch.” If a named beneficiary predeceases the testator of a will under the per stirpes distribution method, their share of inheritance would transfer to their descendants, dividing the total assets of the estate equally among each branch of the family. Instead of naming only specific people to inherit property, per stirpes essentially names a class of beneficiaries to receive estate assets.
Example of Per Stirpes Distributions:
Let’s look back to our previous example, with our testator, Jane, who has instead provided within her will for an equal per stirpes distribution among her three children. If all three of Jane’s children survive her, upon her death, Allie, Ben, and Carl would again all receive equal shares of one-third each of her estate. However, if Allie were to predecease her mother, upon Jane’s passing, Allie’s inheritance would instead pass to her two children Alex and Ann. Therefore, Alex and Ann would split the one-third share of Jane’s estate that would have belonged to Allie, even though they weren’t specifically named within Jane’s will.
Which to Choose?
First, it is important to remember that both per stirpes and per capita only become effective in the event a named beneficiary predeceases the testator or grantor of a trust.
A per capita distribution makes sure that only the persons you precisely name as beneficiaries receive shares of your estate. A per stirpes designation can ensure that future grandkids receive an inheritance from you, thus that can be a disadvantage. For this reason, unless they want to restrict which family members can get inheritance benefits, people with children frequently choose a per stirpes beneficiary designation.
One of the most significant decisions you make when creating your estate plan is whether to distribute money on a per capita or per stirpes basis. It is one of the most important reasons that consulting with a knowledgeable estate planning attorney is extremely necessary. At BentOak Capital, we strive to offer our clients the highest level of tailored solutions. By working closely with trusted estate attorneys and taking into account all aspects – from preferences and financials to family dynamics- We are confident that together, you’ll arrive at a decision best suited for everyone involved.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.
