Per Stirpes Per Capita : What Happens When Your Beneficiaries Pass Before You Do?
A lot of people think that if they take care to name beneficiaries in their trust, will, and accounts, then they’ve covered their bases when it comes to estate planning. They think they’ve made all the decisions they need to make about what will happen to their money after they pass and go along their merry way. As always with most financial matters, however, there’s just more to it than that.
The complications arise when one of your named beneficiaries is deceased already by the time you pass. What happens in this case? Well, it depends on whether your will, trust, and accounts were set up “per capita” or “per stirpes”.
If your assets are left to your beneficiaries per capita no one except for named beneficiaries will ever receive any money. If you pass away and one or more of your beneficiaries predecease you, then their share is distributed equally between the surviving listed beneficiaries.
Per Capita in Action
It’s probably easiest to understand how per capita works by looking at a real-life example. Assume that you have two children, Rachel and Paul, listed as beneficiaries. Rachel has two children named Maria and Tanya. Paul has one child named Paul Junior.
Assume then that at the time of your death, Rachel predeceases you. In this situation, if your money is designated to be distributed per capita, Rachel’s share will revert to Paul. He will inherit the 50% that was originally his plus the remaining 50% that was supposed to go to Rachel. Rachel’s daughters Maria and Tanya will inherit nothing.
When money is left “per stirpes” any money that would have gone to a beneficiary who is now deceased is instead distributed to the deceased beneficiary’s descendants.
Per Stirpes in Action
Per stirpes is a bit more complicated than per capita. Again, it’s easier to understand by looking at an example. Assume the same scenario as before. Again, you have two children, Rachel and Paul, listed as beneficiaries. Rachel has two children, Maria and Tanya. Paul has one child, Paul Junior.
Assume again, that at the time of your death Rachel predeceases you. If the money is getting divided up per stirpes, then Rachel’s share of the money will be distributed equally between her daughters Maria and Tanya. So, in this scenario, your son Paul will get 50% of the money, and your granddaughters Maria and Tanya will each get 25%.
A Word About Spouses
It’s important to note that both per capita and per stirpes don’t recognize spouses. Generally, if one of your beneficiaries predeceases you it doesn’t matter it that person has a surviving spouse.
In per capita, the deceased beneficiary’s money gets divided up between the remaining living beneficiaries. In per stirpes, the money that would have gone to the deceased beneficiary gets divided up between that person’s children. Either way, the spouse of the deceased beneficiary gets nothing.
If this is not how you’d like things to go, you will need to consult with an estate planning attorney to make sure that alternate instructions are created and applied to your will or trust and your accounts.
A Word About Naming Beneficiaries on Accounts
Most people think that if they go through the trouble of creating a will or trust then whatever those documents say is set in stone when it comes to dividing up money after they die. For the most part this is true.
Problems arise, however, when the beneficiary instructions in your will or trust don’t match the beneficiary instructions you selected when you opened your account. In this case the beneficiary instructions on your account will trump what you laid out in your will and trust.
So, if your IRA says to distribute to your three children per stirpes and your will says to distribute to your three children per capita. Or worse, your IRA still has your ex-spouse as your sole beneficiary. Guess what? The instructions on the account take the cake every time.
If you’re not sure what the beneficiary instructions look like on your accounts, now is the time to sit down and review that. Make sure the instructions in your will and trust and on your separate accounts match.
Per Stirpes Per Capita – So what’s an Estate Conscious Person to Do?
Needless to say, estate planning can be a headache. It’s a headache worth having, however, if you want to make sure things go as planned after you pass away.
Take the time now to think about whether you want your money to be distributed per capita or per stirpes, think about who you want to inherit your assets, and make sure your beneficiary instructions are consistent across accounts and legal documents.
Keep in mind, too, that talking to estate planning professionals is almost never a bad idea. Trusted estate attorneys and tax advisors can help you make sure your money is distributed efficiently and according to your wishes after you pass. At the end of the day, who wouldn’t like that peace of mind?