Per Capita vs Per Stirpes
People who are preparing estate planning documents should be aware that these instruments might remain in effect for a lengthy period of time. We live in a dynamic world and circumstances can change over these years. Descendants might be born, pass away or develop cognitive impairments. Due to the possibility of these changes, estate planners often incorporate specific legal terms in drafting wills and other documents. Two of these terms are per stirpes and per capita. Having a good understanding of these two legal concepts can be very helpful in assuring that one’s property is distributed in a manner consistent with one’s wishes.
Per Stirpes is Latin for “by representation” or “by class”. Let’s suppose that Albert, the widower is drafting some estate documents and has three children Bart, Heather, and Mary. Bart has two children, Erasmus and Elvira. Heather has no children and Mary has a daughter named Wanda. If Albert’s will or trust document states that his property is to be distributed to his “then living descendants, per stirpes”, Bart, Heather and Mary will all receive 1/3 shares assuming they all survive Albert. Albert’s grandchildren will receive nothing. However, things change substantially if Albert outlives some of his children. If Bart has passed away previously, Albert’s property is still divided into thirds, with Heather and Mary receiving equal shares and Erasmus and Elvira each receiving a 1/6 share. Erasmus and Elvira are taking what Bart would have received via representation and they split it evenly. If Bart and Heather survive Albert, but Mary does not, Bart, Heather, and Mary’s daughter Wanda will each receive a 1/3 share. If Albert survives childless Heather, Bart and Mary will receive ½ of Albert’s property as Heather has no descendants.
Per Capita is Latin for “by head” and can result in a different distribution. Let’s assume the same facts as previously, but some different language in Albert’s will or trust now states that his property is to be distributed to his “then living descendants, per capita”. If Albert passes prior to all of his children and grandchildren, Bart, Heather, Mary. Erasmus, Elvira and Wanda will all receive a 1/6 share. This is determined by merely “counting the heads”. If Bart pre-deceases Albert, the shares are now 1/5 each to Heather, Mary, Erasmus, Elvira and Wanda. Likewise, this 1/5 share distribution will also be the result if Albert outlived Heather. but Bart, Mary, Erasmus, Elvira and Wanda are still alive. This 1/5 share would also take place if Albert survived Mary, but all other five descendants were alive when Albert passed. As mentioned earlier, the number of descendants’ “heads” surviving Albert determines the fraction they will inherit.
There is no “correct” or “appropriate” method for choosing between these two alternatives. Rather, it is critical to determine in advance how you would like your property distributed and then select the option which best accomplishes that desired result.
If you would like to learn more about these and other wise financial planning moves, please contact us through our Level 5 Financial LLC website or via phone at 719-323-1240. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.
