When creating an estate plan, one of the basic documents you need is a will. In estate planning, it is important to distinguish between per stirpes and per capita distributions. These are two terms you are likely to come across when creating your estate plan, says Yahoo Finance’s recent article entitled “Per Stirpes vs. Per Capita in Estate Planning.”
Per stirpes is Latin and means “by branch” or “by class.” When this term is used in estate planning, it refers to the equal distribution of assets among the different branches of a family and their surviving descendants. This lets the descendants of a beneficiary keep inherited assets within that branch of their family, even if the original beneficiary passes away. The assets would be equally divided between the survivors. Per stirpes distributions essentially create a “trickle-down” effect: assets can be passed on to future generations if a primary beneficiary passes away.
In contrast, “per capita” is also a Latin term that means “by head.” When you use a per capita distribution method for estate planning, any assets you have would pass equally to the beneficiaries who are still living when you pass. The share portions would adjust accordingly, if one of your children or grandchildren were to die before you.
Whether it makes sense to use a per stirpes or per capita distribution in your estate plan can depend for the most part, the way in which you want your assets to be distributed after you are gone.
Per stirpes allows you to keep asset distributions within the same branch of the family and eliminates the need to amend or update wills and trusts when a child is born to one of your beneficiaries or a beneficiary passes away. This method can also help to minimize the potential for infighting among beneficiaries, since asset distribution takes a linear approach. However, an unwanted person could take control of your assets.
With per capita, you can state precisely who you want to name as beneficiaries and receive part of your estate. The assets are distributed equally among beneficiaries, based on the value of your estate at the time you pass away.
Per stirpes and per capita distribution rules can help you determine how your assets are distributed after you die.
Talk with an experienced estate planning attorney to fully understand the implications of each one for your beneficiaries, including how they may be affected from a tax perspective.
Reference: Yahoo Finance (Jan. 7, 2021) “Per Stirpes vs. Per Capita in Estate Planning”