Understanding Per Stirpes vs. Per Capita: A Simple Breakdown for Your Estate Planning
Today, we're going to dive into two terms you might come across when planning your estate: per stirpes and per capita. They might sound a bit intimidating at first, but trust me, they're essential to understand so you can make the best decisions for your loved ones.
So, let's say you've got a pretty straightforward plan for your estate: when you pass
away, you just want your heirs to inherit what's left. But life can be unpredictable, right? What if one of your heirs passes away before you do? How should their share of your estate be divided? That's where per stirpes and per capita come into play.
Per stirpes basically means that each branch of your family gets an equal share of your estate. Imagine you have three kids; each of them would get one-third of your estate when you pass away. With per capita, it works the same way - your three kids would still get one-third each. But things change when one of your heirs passes away before you do.
Let's say one of your children has two kids, while another has only one. In this situation, per stirpes and per capita can lead to different outcomes. With per stirpes, the grandchildren inherit their deceased parent's share, dividing it among themselves. So if one child had four kids, they'd each get one-quarter of their parent's one-third share. On the other hand, with per capita, all your grandchildren would have an equal claim on your estate if their parents passed away. This means that whether a parent has one or four kids, all five grandchildren would split the remaining two-thirds of your estate equally.
Here's another example to help illustrate the difference between per stirpes and per capita. Let's say you have two children, and each of them has two kids. If one of your children passes away before you, under per stirpes, their share would go to their two kids, who would each get half of their parent's half-share. But with per capita, the three remaining grandchildren would each get an equal share of your estate – one-third each, regardless of their parent's share.
The bottom line is that it's essential to understand how per stirpes and per capita affect the distribution of your estate. That way, you can make informed decisions to ensure your loved ones are taken care of according to your wishes. So take some time to consider the options and make the choice that works best for you and your family.
When you die, you just want your heirs to get what's left, right?
But what happens if one of your heirs dies before you? Will the money get split up between the remaining heirs? Or does the deceased's heirs get their fair share?
Well, the choice is yours! Unless, of course, you pass. Then it's whatever you marked off on your beneficiary designation.
Did you not check anything? Then what's the default option? Who is getting your money?
Passing your estate to your heirs. Your financial advisor might ask you to choose between 'per stirpes' or 'per capita.' Two terms that sound Greek at first but it is important to know the difference.
When you leave your estate to your heirs 'per stirpes' each branch of your family would get an equal amount of your estate. For example, if you have three children, your three children will each get a third of your estate upon your passing. At this point, a per capita option will also give your three children a third of your estate.
Unfortunately, something might happen to one of your heirs and pass away before you. This is when the choice between 'per capita' or 'per stirpes' is important. If one of your children had two children and your other child only had one, there would be a difference in the distribution of your estate.
When selecting 'per stirpes', your grandchildren have the right to split up the original share of their deceased parents. So if one of your children has four children, they would all have the right to a quarter of one-third. If you decide to leave your estate per capita, all your grandchildren will have an equal right to your estate, if their parents pass away. So regardless if you have one parent with four children or one parent with one child, the five grandchildren all split up their estate equally, and all get a fifth of the two-thirds that is left.
So make sure you understand how your estate is distributed when you choose between 'per stirpes' or 'per capita.'