The terms “per stirpes” and “per capita” are commonly used in wills and revocable living trusts. These terms describe how you wish to leave your assets to your beneficiaries and how you want to pass on the inheritance if one of your beneficiaries predeceases you.
What is the difference between per stirpes and per capita?
Per stirpes distributions mean that if none of your beneficiaries are alive at the time of your death, their share of the inheritance will pass to their descendants. If one of your beneficiaries has died and is survived by any descendants, those descendants will take what their deceased parent would have received “by representation.”
Per capita distributions can only go to the named beneficiaries. They do not pass to the next generation. These distributions remain in the inheritance if a beneficiary dies before the decedent, to be divided equally among the beneficiaries who are still alive.
Examples of per stirpes distributions
Let’s say you have three children: Ann, Bart, and Carl. Ann has two children: Drew and Eve. Bart and Carl and Drew and Eve do not have descendants.
Here’s what happens in different scenarios if your will or living trust states that your assets will be distributed to “your living descendants then, per stirpes”:
- If Ann, Bart, Carl, Drew, and Eve all survived you: Ann, Bart, and Carl will each receive a 1/3 share. Drew and Eve will receive nothing.
- If Ann had died before you and Bart, Carl, Drew, and Eve all survived you: Bart and Carl will each receive a 1/3 share. Drew and Eve will each receive a 1/6 share. They will take what Ann would have taken by representation and in equal shares, and 1/3 ÷ 2 equals 1/6 each.
- If Ann, Carl, Drew, and Eve all survived you and Bart had died before you: Ann and Carl will each receive a 1/2 share. There won’t be a share created for Bart because he predeceased you and left no surviving descendants. Drew and Eve will receive nothing.
- If Ann and Drew had died before you and Bart, Carl, and Eve all survived you: Bart and Carl will each receive a 1/3 share. Eve will receive a 1/3 share. She will take by representation what Ann would have taken. There’s no need to create a share for Drew since he died before you and left no surviving descendants.
Per stirpes distributions are used in estate planning to cover all typical family situations, so you don’t have to change your estate plan every time a child is born or a beneficiary dies. The term per stirpes is a Latin term meaning “by representation” or “by branch.”
Per stirpes distributions are more commonly used in estate planning than per capita distributions because they cover the typical family situation.
Note: Clearly express your intentions to your attorney if you do not want this style to be part of your estate plan. Otherwise, you will have to change your plan each time one of your beneficiaries dies if you no longer wish to apply this typical distribution.
Examples of per capita distributions
Here’s what happens if your last will states that your assets will be distributed to “your living descendants then, per capita”:
- If Ann, Bart, Carl, Drew, and Eve all survived you: Ann, Bart, Carl, Drew, and Eve will each receive a 1/5 share.
- If Ann had died before you and Bart, Carl, Drew, and Eve all survived you: Bart, Carl, Drew, and Eve will each receive a 1/4 share.
- If
- If Ann, Carl, Drew, and Eve all survived you, and Bart died before you: Ann, Carl, Drew, and Eve will each receive a 1/4 share.
- If Ann and Drew died before you, and Bart, Carl, and Eve all survived you: Bart, Carl, and Eve will each receive a 1/3 share.
“Per capita” means “by head” in Latin. All members of the designated group who are alive will receive an equal share if the beneficiaries will share in a per capita distribution. No share will be created for the deceased beneficiary, and the shares of the other beneficiaries will be adjusted accordingly if any member of the designated group is deceased. The share of the deceased will be absorbed proportionately by the others.
Note: You will need to ensure that your estate plan addresses any generation-skipping shares that may arise from this type of arrangement if you prefer to use a per capita distribution. These distributions can have tax implications.
Another Thing to Consider
If you leave direct shares to grandchildren and great-grandchildren through a per capita distribution or any other type of direct distribution when your children have survived you, this will trigger the generation-skipping transfer tax on the shares received by the grandchildren and great-grandchildren. Work closely with your estate planning attorney to ensure you avoid that additional and costly tax.
Conclusion
Per stirpes distributions can simplify your estate plan if you are confident that you want the descendants of the beneficiaries to inherit their shares from the estate. Just remember that you are likely giving the surviving spouse of the beneficiary control over the inheritance if it passes to a grandchild who is still a minor and cannot legally control or own their own property yet.
Per capita distribution gives you more control over who receives what, but you may need to go back and adjust your estate plan every time a new child is born or if your specific beneficiaries pass away.
FAQs
Can I choose a per stirpes or per capita beneficiary for my retirement accounts? Yes, you should. The custodian will have a default option and will use it if you do not make your preferences clear.
What is the generation-skipping transfer tax, and when does the estate become liable for it? The generation-skipping transfer tax (GST) is imposed at the federal level and in some states. It applies to lifetime gifts and inheritances from the estate when the beneficiary is more than two generations younger than you if you are related to them, or more than 37.5 years younger if you are not. There is a generation between you and the recipient. It shares the same exemption as gift and estate taxes, so very large estates are the ones that are taxed.
Source: https://www.thebalancemoney.com/per-stirpes-versus-per-capita-distributions-3505142
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