Choosing between “per stirpes” and “per capita” will impact asset distribution.
Estate planning can be nuanced.
Those who are unfamiliar with legal terms, tax law, and estate law can easily make costly mistakes.
Many people attempt to create a do-it-yourself will.
Doing so can create unintended problems for your loved ones and your estate.
According to a recent Yahoo Finance article titled “Per Stirpes vs. Per Capita in Estate Planning,” one such issue involves how assets are divided among heirs.
This problem oftentimes arises with the language in a last will or revocable living trust.
Assets are typically directed either to pass “per stirpes” or “per capita” to heirs.
How are these different?
“Per stirpes” is a Latin phrase translated “by branch” or “by class.”
Within estate planning, “per stirpes” provides for an equal distribution of assets down each separate branch of a family.
For example, if your son dies before you, then his children will inherit his portion in equal shares.
“Per capita” is a Latin phrase translated “by head.”
Within estate planning, “per capita” provides for an equal division within a class of beneficiaries.
Using the same hypothetical as above, if your son dies before you, then his two sisters will inherit his portion in equal shares.
His children will be disinherited.
Is one better than the other?
It depends on your goals for asset distribution.
“Per stirpes” keeps each inheritance within the specific branches of your family.
When a new child is born to your beneficiary, it is not necessary to update your last will or trust to include this newest addition.
On the downside, you may end up leaving control of assets to someone who may have been better of disinherited.
“Per capita” allows for the most specific designation of heirs.
If you list the heir, she will receive a portion of the estate.
If she is not named, she will not inherit.
When it comes to beneficiary designations on life insurance and retirement plans, the default designation is commonly “per capita” because the institution is not required to search for beneficiaries beyond those named.
Talk with an experience estate planning attorney about whether “per stirpes” or “per capita” distributions align better with your goals and family circumstances.
Reference: Yahoo Finance (Jan. 7, 2021) “Per Stirpes vs. Per Capita in Estate Planning”