Statutes and legal documents often include strange language and curious terms that might not mean much to the average person. Estate planning documents and their governing laws are certainly no exception. While an estate planning attorney can explain these terms to you, having a basic knowledge of some rules that may apply to you, is a good idea. For instance, the terms “per stirpes” and “per capita” are used to describe how your estate will be distributed. Indeed, per stirpes and per capita distribution of assets are very commonly used terms in this area of the law. So, what exactly do they mean?
“Per stirpes,” like many legal terms, is a Latin term. Literally, it means “by the roots.” When an estate is distributed per stirpes, it means each living member of each “group” of heirs or beneficiaries takes a proportional share of that which the deceased ancestor would have received. For example, a man died with a will and his wife had already passed away. They had four children, but only three of them are still living at the time of the man’s death. The deceased child had two children, both of whom are still living. If the will said the distribution was to his children or their descendants per stirpes, the man’s estate would be divided into four equal shares. The three living children would receive one-fourth share, each. The two grandchildren (children of the deceased child) would share the remaining one-fourth share.
Per capita, a Latin term some may be more familiar with, literally means “by the head.” When an estate is distributed per capita, all living members of an identified group will receive an equal share of the decedent’s estate. A significant difference between per stirpes and per capita is that, if one member of the group is no longer living, his share does not pass on to another group. Instead, that share would pass to the other members of the group. In other words, in the distribution described above, if the will said distribution was "to my children, per capita, instead of the three living children receiving one-fourth shares, they would receive one-third shares. None of the grandchildren would receive any portion of the estate. If, however, the will said distribution was, "to my children and their descendants, per capita," the estate would be divided 20% to each child and 20% to the two grandchildren, because they are in the same group.
Per stirpes is used more commonly in estate planning, most likely because it addresses the typical family situation. However, if you believe a per capita distribution better suits your family situation, then it is important to discuss that with your estate planning attorney. Keep in mind that if you leave a distribution directly to your grandchildren, while your children have also survived you, your estate could be subject to a generation skipping transfer tax. There are specific estate planning tools designed to reduce or eliminate this type of tax, such as a generation skipping trust. So, discuss these options with your attorney.
If you have questions regarding distribution of your assets, or any other estate planning needs, please contact Anderson, Dorn & Rader, Ltd., either online or by calling us at (775) 823-9455.