Depending on your estate and the circumstances, the designation of per stirpes vs. per capita could be significant. Both of these terms relate to how your property will pass if a beneficiary predeceases (dies before) you.
Here is everything you need to know about per capita vs per stirpes, what is per stirpes, definitions of per stirpes and per capita, and an illustration of how these simple terms could significantly impact your estate plan.
What Does Per Stirpes Mean?
If you were to ask an estate planning attorney to define per stirpes, they might say it’s Latin for “by branch.” But what does that mean? Cornell Law School provides the following per stirpes meaning: “This phrase often appears in the context of wills… to define how your assets should be passed down in the event a beneficiary passes away before you do.”
When you arrange your will or other estate planning documents so that your loved ones receive your property per stirpes, if a beneficiary dies before you, each surviving beneficiary in the same branch of the family tree would still receive their original share of the estate. However, the deceased beneficiary’s heirs would split the decedent’s share of the estate equally. According to this per stirpes definition, the share you leave for a beneficiary who predeceases you will be split evenly by their heirs.
For example, if you named your son Adam to receive a share of your property but Adam predeceases you, his living children Edward and Fiona would evenly split that share. Your other children’s shares would not be affected.
How Per Stirpes Works
By branch refers to all of the people down a family tree. As you can see in the family tree diagram below, vertical lines represent a parent/child relationship while horizontal lines represent siblings. The tree is set up in a hierarchy so that the people at higher elevations of the tree are parents, grandparents, and great-grandparents of the people below them. A branch refers to every person down a family tree, beginning from a specified person.
Each branch of the family tree is treated by the testator according to their wishes. Generally, per stirpes means that children represent their parents if a parent passes away before the testator (the person making the will). Spouses are not included in the per stirpes beneficiary distribution.
What Does Per Capita Mean?
Per capita is the other side of the coin. Its literal translation is “by the heads.” The legal term “share and share alike” is sometimes used in its place. With per capita distribution, property is divided equally among surviving beneficiaries that are alive upon the death of the testator. The testator will determine up front which group receives their assets, such as their children or grandchildren or both.
If a beneficiary dies before the testator, the amount of their share is added to the “pot” and divided among the other beneficiaries.
For example, if you left your estate to your “descendents, per capita” and you son Adam has two children. Then each child will receive an equal share to their father, uncles, and aunt Bo, Charlie, and Diana. If Adam predeceases you, his children Edward and Fiona would split the entire pot, along Bo, Charlie, and Diana. Your other children’s shares (Bo, Charlie, and Diana) are affected in that their shares are less than than what they would have been had you left your estate per stirpes, and that their shares are variable and will go up if a beneficiary predeceases you.
Now if you left your estate to your “children, per capita”, then Adam’s two children, Charlie and Diana, wouldn’t inherit if Adam is alive upon your death. If Adam predeceases you, his children still won’t inherit, unlike in per stirpes, where they would split Adam’s share.
What’s the Difference in Per Stirpes and Per Capita?
Both of these terms refer to what happens to a share if a beneficiary dies before the testator. However, the outcome is much different. In a per stirpes arrangement, the deceased beneficiary’s heirs receive the decedent’s share. In a per capita distribution, each person receives an equal share based on the total to be distributed. Depending on the circumstances, the designation could significantly affect the inheritance beneficiaries share and whether a beneficiary’s heirs receive any inheritance at all.
Understanding the Per Capita and Per Stirpes Definition in Context
Now that we have per capita and per stirpes defined, let’s look at how this distinction might affect a potential estate plan.
To keep things simple, we’re using money as the hypothetical inheritance, but other property like a family home, business interest, or personal property could just as easily be used. We’re also using two generations of beneficiaries. However, the term heir can refer to any of the beneficiary’s descendants, such as children, grandchildren, great-grandchildren, etc. If there was no living beneficiary in one generation, you would go to the next generation.
Here are some facts we’re using so you know the players involved.
John is the testator.
He has four children: Adam, Bo, Charlie, and Diana.
Adam predeceases John.
Adam has two children: Edward and Fiona.
Suppose John has $1 million that he is passing onto his descendants to receive. Here is how this would work out.
Per Stirpes
All four children would be set to receive an equal share of $250,000. So that would look like this:
However, Adam predeceases John. Therefore, John’s $250,000 passes onto his children, Edward and Fiona. This situation would now look like:
Per Capita
Now, we will look at how the situation would work if a per capita designation was provided in the will to benefit the children and grandchildren. The situation would still start the same: All four children would be set to receive an equal share of $166,666. You can see that Bo, Charlie, and Diana inherit less since Adam’s children are in the picture, assuming you wanted your estate to pass to your “descendants, per capita.”
However, this you can see how changes occur if Adam predeceases John. This affects everyone’s share because the inheritance is divided equally among all beneficiaries. Everyone’s shares go up.The amount of the inheritance would now look like this:
As you can see from this illustration, Edward and Fiona wind up in a better position. Everyone went up from $166,666 to $200,000 .
Let’s further complicate the situation by saying that Charlie also has two children, George and Heather. Diana also has a child, Ingrid. Because the will is set up to benefit both the children and grandchildren, this situation would look like this:
The amount of the inheritance is divided by however many people stand to inherit, so in this case, that would be $1,000,000/8 = $125,000 each.
In contrast, if the will was only set up to benefit only John’s children, the situation would look like this:
In this scenario, Adam would be entitled to nothing. He no longer has a share, so his children also would not receive anything. Neither would Charlie nor Diana’s children because the will said that only the children would stand to inherit per capita.
Why Should You Care About Per Stirpes vs. Per Capita?
Per stirpes and per capita sound similar, but they have opposite meanings. If you use the wrong term in your will, the consequences could be significant for your beneficiaries. Your deceased child’s share you intended to go to their own children may be minimized or eliminated if you use the wrong designation. Generally, the more people who stand to inherit, the less each person will individually receive under a per capita arrangement.
Which Is Better: Per Capita or Per Stirpes?
Which arrangement to use depends on what you want to achieve. A per capita arrangement gives an equal share of the distribution to each beneficiary. A per stirpes arrangement gives a beneficiary’s heirs the share of their parent. An estate planning attorney can also help you determine which arrangement is best for you.
You can determine which option is better by answering questions, such as:
- How many beneficiaries do you have?
- Do you want your grandchildren to inherit immediately upon your death?
- What do you want to happen if a beneficiary dies before you? Do you want all of the other beneficiaries to absorb their share? Or do you want the decedent’s children to receive the share?
- How difficult is it to include contingent beneficiaries in your estate plan?
- What do you think is fair?
- What are the family dynamics like?
- Do all of your beneficiaries need to inherit equally? Do some have more needs than others?
- Do you have reason to believe a beneficiary might predecease you?
Different states have different ways they arrange for heirs to receive your property if one or more heirs predecease you and you die intestate, so the best way to have your property distributed according to your wishes is to create your own will and use the designation you prefer (or something else entirely). You do not want to create confusion for the probate process. An experienced estate planning lawyer can also provide advice about which designation may best achieve your goals.
Are There Alternatives to Per Stirpes or Per Capita?
Yes. Per stirpes and per capita arrangements are not the only arrangements you can use. Both of these arrangements only arise if your named beneficiary passes away. However, you do not have to only provide an option for a deceased beneficiary’s share to go to their surviving children or the other surviving beneficiaries.
Instead, you can create contingent beneficiaries. These are people who would inherit if the beneficiary died. For example, you may choose to name your friend Kurt to inherit. If Kurt predeceases you, you could name his wife Julie to inherit instead. If Julie and Kurt both die in a tragic car accident, you could name someone else completely unrelated to them to inherit.
What Assets Do Per Capita and Per Stirpes Refer To?
The terms per capita and per stirpes often refer to an individual’s assets identified in a last will and testament, living trust, or other estate planning document which may include:
- Real property
- Money
- Investments
- Personal property
- Other property
However, these terms can also be used to refer to beneficiary designations for Individual Retirement Accounts (IRA).
Takeaway of Per Stirpes vs. Per Capita
Per stirpes and per capita are two ways to establish contingencies in case a beneficiary predeceases you. There are other options. Understanding these terms and the options available to you can help you create a will or trust that clearly communicates your wishes.