“Per capita” and “per stirpes” are phrases you’ve probably never heard of or at least don’t use very often. These phrases can determine how your wealth is passed on to each generation of your family. So not knowing the difference can potentially lead to disinheriting your loved ones.
Three Ways To Pass On Your Wealth to Your Beneficiaries
Per Capita– comes from Latin meaning “per head”.
Per Capita splits things evenly among your surviving beneficiaries. If your beneficiaries are your children, and one of your children dies before you, then your surviving children and any grandchildren from your deceased child would all receive an equal share.
Per Stirpes– comes from Latin meaning “down the line”.
Per Stirpes means that your assets would be moved down the line depending on surviving beneficiaries. So if you name your children as your beneficiaries, but one child dies before you, his or her children would receive the share only of their deceased parent. This would mean that, if your deceased child has two kids, the deceased child’s kids (your grandkids) would receive half of your child’s share.
By Representation– passes things equally by generation.
By Representation levels the inheritance for each generation. Meaning, if your children are named your beneficiaries but one dies before you, their children would receive your deceased child’s share. But if more than one of your children dies before you, then the shares from your deceased children’s inheritances would be combined and split equally among all their children (your grandchildren) instead of being divided by their parents’ share.
Ensuring Your Estate Plan Works the Way You Want
With so many potential scenarios, it’s important to think about how you want your legacy to be disbursed to future generations. Make sure your beneficiary designations align with your estate plan documents. For life insurance and retirement accounts that list your children as primary or contingent beneficiaries, make sure that your designations line-up with your wishes. Otherwise, you may want to list your trust as the beneficiary that would divide your estate according to your wishes. Please make sure to consult your estate planning attorney before listing your trust as the beneficiary of any retirement accounts or life insurance policies, however, because there may be adverse tax consequences if you do it.
We can help you go through the various scenarios and make sure your plan matches your wishes. If you need an estate plan or need to update an existing plan, contact us for your free initial consultation.
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Disclaimer: This article is intended to serve as a general summary of the issues outlined therein. While this article may include general guidance, it is not intended as, nor is a substitute for, qualified legal advice. Your review or receipt of this article by Lexern Law Offices, Ltd. (the “LLG”) or any of its attorneys does not create an attorney-client relationship between you and the LLG. The opinions expressed in this article are those of the authors of the article and does not reflect the opinion of the LLG.