Per stirpes or per capita?

You want to keep things simple.

You tried to keep things simple.

Sorry, it’s not going to be so simple.

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 have 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.’