Do you have a large, multigenerational family? If so, estate planning can be complicated by the number of individuals involved, the generational relationships, and the probability of life changes among your potential heirs after you create your estate plan.
To make things easier, you may choose to use one of two distribution methods that name heirs without having to name every heir. These methods are known as per capita and per stirpes. Here's what you need to know about each.
What Is Per Capita Distribution?
Per capita is a Latin term that basically means per person. In estate planning, a per capita distribution among heirs means that each person is treated as an equal individual for the purposes of receiving their portion of the estate. For example, if you have two children and they have two children each, a per capita distribution to your descendants gives one- fourth to each person. There is no distinction between generations.
What happens if one of your adult children predeceases you? In this case, the per capita distribution would change to one-third going to each of the surviving children and grandchildren. On the other hand, if your youngest adult child has another baby, the distribution automatically changes to one-fifth each. All parties are affected equally.
What Is Per Stirpes Distribution?
Per stirpes is an approach by group or generation. Families are grouped as a single unit for inheritance purposes.
Consider the example above of two children and two grandchildren. If one of your adult children passes away, the estate is not divided equally between the three remaining heirs. In this case, only that late child's original portion is passed down to their children, so your remaining child would inherit one-half of the estate and the late person's two children would inherit one-fourth each.
How Do These Methods Help Planning?
One compelling reason to include some type of excess distribution instructions is to simplify your estate plans. You don't have to rewrite all your estate documents every time a baby arrives or someone passes away.
But its most important function is to prepare for the worst type of emergency most parents could imagine: a child or other heir passing away before them. This is especially important if the death of the child happens close to the passing of the estate owner or when the estate owner is not competent to make any will changes. Without this contingency plan, the remaining family members could contend the estate plan.
Which Method Is Best for You?
Both per capita and per stirpes methods of distribution are legitimate choices, and there is no one-size-fits-all choice. The right path depends on how you want other heirs affected when a change happens to one of them.
If one of your adult children pre-deceases you, how do you want their portion redistributed? If you want the others in their generation to absorb the change, per capita could accomplish this. Per capita can be seen as a fair division, in particular, if most or all of the heirs are adults and managing their own households and finances.
If, on the other hand, you want the deceased person's own heirs to receive their portion instead, per stirpes is a good solution. The per stirpes method keeps the individual family totals consistent no matter what happens within the family unit. And if generation-skipping taxes are prohibitive, per stirpes may be a better tax strategy.
Where Can You Learn More?
How would per capita and per stirpes distributions work in your own family situation? Learn more by meeting with the estate planning pros at
Donald B. Linsky & Associate PA. We can work with you to analyze your choices and find the right estate plan to achieve your unique goals. Call for an appointment today.
