This originally aired on the Catholic Faith Network’s show CFN Live: https://youtu.be/Uy9_EvlFiFo While most people…
Often we are asked by our clients to differentiate between “per stirpes” and “per capita”. For this blog post, we would like to revisit a blog that explains the difference between the two:
You may have heard or read the legal terms “by representation”, “per stirpes”, or “per capita” when researching estate planning. These terms may sound like irrelevant legal jargon, but these terms are very important when deciding how you would like your assets to pass to your loved ones when you die. If you do not understand the difference between them, you could choose the wrong method of gifting that could have a serious impact on your estate plan.
The meaning of these terms are important in the event that your child or beneficiary predeceases you. For instance, if your child predeceases you, the gift that you were left to him or her then could go to your predeceased child’s children (your grandchildren) depending on the method you choose. If more than one of your children or beneficiaries predecease you, the terms “by representation,” “per stirpes,” and “per capita” will determine how the assets will pass to the children of your predeceased children.
Before you decide to execute your Last Will and Testament or a living trust and gift your assets, it is important to understand the different ways of doing so as part of your estate planning so that your beneficiaries are able to inherit the way you intended.
By Representation (New York Default Provision)
“By representation” is the default New York provision. This means that unless you otherwise specifically choose a different method of distribution in your Last Will and Testament or in your trust, your assets will automatically be distributed according to the “by representation” method.
How it works: The predeceased beneficiaries’ shares at the same generation are divided equally between all their children.
Example: Tom has three children, Mark, John, and Anthony. Mark has two children, John has one child, and Anthony has five children. John and Anthony predeceased their father Tom. Tom’s will state that his assets pass equally to his children and to their issue “by representation.” When Tom dies, Mark will receive one-third of his estate (1/3), and John and Anthony’s children (6 in total) will all split the remaining two-thirds of the estate equally.
“Per Stripes” means that the beneficiary who has the closest familial relationship to the testator/decedent will receive an equal share of the decedent’s assets.
Example: If you leave your child all your assets, and your child predeceases you, your child’s two children(your grandchildren) share the inheritance that your child would have been entitled if still living.
“Per capita” means that the beneficiaries share the distribution of the gift based upon the number of beneficiaries which are living at the time of decedent’s death. If any of your beneficiaries predecease you, their share will not transfer to their descendants, but will transfer to the remaining surviving beneficiaries.
Example: Tom has four children. One of his children predeceases him, leaving two children (Tom’s grandchildren). Tom’s Last Will and Testament leaves his estate to his children per capita. When Tom dies his three children who survived him will share equally in the distribution of his estate. The children of Tom’s predeceased child (his grandchildren) will not be entitled to inherit their deceased parent’s share.
When gifting assets to children and their descendants, it is important to consider whether you will be subject to a generation skipping transfer tax.
In order to avoid any unnecessary tax liability and to ensure that your wishes are truly honored, it is important to speak with an experienced estate planning attorney.