Sometimes, law seems like its own language. Part of that is because lawyers and judges like to drop in jargon or Latin where it isn’t really necessary (“inter alia” is one of my pet peeves–just say “among other things!” I could write a book about my irritation with this, so let’s stop here). But, for better or worse, jargon survives.
And per stirpes and a similar concept, per capita, are just that kind of surviving jargon. If you’re got an estate plan, there’s a good chance these words appear in there–but what do they mean?
Both per stirpes and per capita describe plans for distributing property if a beneficiary dies before the person who made the will or the trust involved. Their differences can be significant, though, so it’s important to understand what the terms mean and if the term actually describes the plan you had in mind.
Per stirpes describes an arrangement where, if a member of a class of beneficiaries dies before the person who made the will or trust, that person’s descendants share equally in what the deceased beneficiary would have received. I think it’s easiest to understand this with an example. Let’s say that you have 4 kids: 1 with no children, 1 who has 1 child (a grandchild to you), another who has 2 children, and another which has 3 children. Here’s what that family tree would look like:
Let’s say that you leave your estate equally to your children, per stirpes. If none of your kids die before you do, this is pretty easy:
So what happens if one of your kids dies before you? First, if Kid #1 dies, that child didn’t leave any descendants. In that case, the living children wind up splitting it 3 ways:
But if one of the kids that does have children of their own dies before you do, now per stirpes and per capita start to matter (although, as you’ll see, sometimes you get the same result). What if Kid #2 dies before you do? Then, you get this:
Because Kid #2 was deceased, under per stirpes, the descendants of Kid #2 split Kid #2’s share equally. That math isn’t too hard: 1/4 divided by 1 is still 1/4. In this example, the fact that the grandchild who takes here gets the same amount as the children is a coincidence; it won’t always be like that.
To illustrate that, here’s what happens if Kid #4 dies before you do:
In this case, Kids #1, #2, and #3 all get 1/4, and Kid #4’s 1/4 is split by Kid #4’s three children. 1/4 divided by 3 is 1/12, so each of those three grandkids get 1/12 of the total.
You can also do this with multiple kids dying before you (and that’s where per stirpes and per capita matter). Let’s say that Kid #3 and Kid #4 died before you. Here’s what that would look like:
In this example, Kid #1 and Kid #2 are still alive, and they each get their 1/4 share. Kid #3’s 2 children split Kid #3’s 1/4 share, and Kid #4’s 3 children split Kid #4’s 1/4 share. For Kid #3’s children, they each get 1/8 (because 1/4 divided by 2 is 1/8), and for Kid #4’s children, they each get 1/12 (because 1/4 divided by 3 is 1/12).
That seems easy enough. How is per capita different?
One of the difficulties with talking about per capita is that there’s not just one variant of per capita. There are two main variants: per capita and per capita by generation. Because these terms can be confusing, I prefer to avoid using them in my estate plans. However, you may see them, so let’s talk about what they mean.
Where per stirpes evens things out for each branch of the family, per capita evens things up between the beneficiaries. Per capita by generation evens things up between the beneficiaries that are part of the same generation.
To illustrate how these work, let’s go through the example where both Kid #3 and Kid #4 die before you do. In that case, notice how per capita distribution changes things.
In a per capita distribution, every beneficiary would get the same amount. If Kid #3 and Kid #4 have died, then you have seven beneficiaries, and each gets 1/7. However, in a per capita by generation distribution, each beneficiary would get the same amount as the other beneficiaries in that person’s generation:
In this example, Kid #1 and Kid #2 both get their 1/4 share, leaving 1/2 of the estate remaining. However, that 1/2 is now divided by the 5 grandchildren who did not have a surviving parent, and 1/2 divided by 5 is 1/10, so each of those grandchildren get 1/10 of the estate (remember, in per stirpes, Kid #3’s kids got 1/8 each and Kid #4’s kids got 1/12 each). Unlike per stirpes, the branches of the family weren’t treated equally. Under per capita, Kid #1’s and Kid #2’s branches got 1/7 each, Kid #3’s branch got 2/7, and Kid #4’s branch got 3/7. Under a per capita by generation distribution, Kid #1’s and Kid #2’s branches got 25% each, Kid #3’s branch got 20%, and Kid #4’s branch got 30%.
If this is giving you a headache, I apologize.
So which one should I use?
Well, that’s really the big question, isn’t it? The short version: there’s not a right answer, it’s really just a preference. These aren’t even your only choices! What’s really important is that you and your lawyer understand what you want to do and that your preference shows up in your estate plan.
The big drawback to per stirpes, I think, is that sometimes grandkids might think they’re not being treated fairly. Consider the result when Kid #3 and Kid #4 died first–two grandkids got 1/8 and three grandkids got 1/12. If you’re one of the grandkids who got 1/12, you might be irritated that two of your cousins got more than you did, and it can cause fights.
Likewise, in a per capita distribution, each living child gets the same share as a grandchild whose parent didn’t survive. Are the living children going to be okay with getting the same share as a grandchild? The per capita by generation method avoids that problem, but that could upset the grandchildren. I don’t bring all this up to give you things to worry about, but I do think you should understand how each system works. Ultimately, it’s up to you.
In fact, the Missouri Court of Appeals, Eastern District just dealt with this very issue. There was some litigation involving a trust (actually, the trustee wanted direction from the court, it appears) that required that assets be paid out to the trust maker’s 2 children, and then to descendants per stirpes. One of the children (Bud) had four kids, and the other child (Dorothy) had two–6 grandkids total. The question put before the court, then, was whether the assets should be given half to Bud’s branch (so each of Bud’s children would get 1/8 of the total, which is 1/2 divided by four) and half to Dorothy’s branch (so each of Dorothy’s children would get 1/4 of the total, which is 1/2 divided by two) or whether all the grandkids should just get 1/6 each. The court said that because the trust required ditribution per stirpes, the distribution where Bud’s branch gets half and Dorothy’s branch gets half was the correct distribution.
Because the bank actually started the process by asking the court what to do, I don’t know that this was part of any sort of disagreement between the family members. Hopefully, there wasn’t. However, in some families, a beneficiary with a smaller piece of the pie may get upset. In the end, as always, it’s your decision. However, when you see these terms, you should understand what they mean and how it affects your plan.