When the average person hears terms like “per stirpes” and “per capita,” they can often be left scratching their heads. This is understandable. Terms like per stirpes and per capita are almost never encountered in our daily lives. Nevertheless, they have specific and important meanings when it comes to estate planning. Here’s what you should know about these two terms, and how they play a role in your plan.
Gifts and Estate
The terms “per stirpes” and “per capita” are important in understanding how the property you leave behind you after you die will be distributed to others. Specifically, these terms apply to inheritances. Every state has laws that divide your property if you don’t have a will. Some states divide this property in per stirpes manner, while others do so in a per capita manner. Further, you can choose which one applies if you create a will of your own. But whether you make a will or die without a will, per stirpes and per capita determine, in part, how inheritances are distributed to your heirs.
Per Capita Gifts
To understand how these two different systems work, let’s use an example. Let’s say you have two children. Each of your children also has a single child. Further, let’s say that you make a last will and testament in which you leave each of your children an equal portion of your estate.
If you leave that gift per capita, this means that each of your children will receive half of your estate upon your death. However, if one of your children should die before you, the other child would inherit your entire estate.
Per Stirpes Gifts
Now that we understand how per capita gifts work, we can get a better understanding of how per stirpes gifts work. In a per stirpes gift distribution, the descendants of someone who would have received a gift also stand to inherit.
For example, using the scenario outlined above in which you have two children, each child would receive half of your estate upon your death if they both survive you. However, if one child dies before you, the offspring of that child would inherit his or her share under a per stirpes distribution. Since your deceased child left behind a single child, that single grandchild would receive the portion of your estate your child would have received. This means that half of your estate would go to your surviving child, and the other half would go to the child of your deceased child.
Per stirpes and per capita rules can be complicated, so it’s important you understand them before you make a choice. Always ask your lawyer to help you understand what options are available to you, and what effect those choices will have on your estate.