per stirpes vs per capita

Per Stirpes vs Per Capita Distributions: Know What Does It Mean

A will is a very important legal document that is made to clear out the distribution of your assets after your death occurs. One has to very clearly specify the beneficiaries in it so that the assets are passed on to the right people and with the right share. 

If you don’t make a will then there are chances of family fights to get your properties, in this case, the matter may reach the court and then the decision of the distribution of the assets will be taken out by the judge. 

To avoid fights and disagreements between your family members after your death, you should prepare a will and get the consent of your family members about how the assets will be shared. 

What are the consequences if a will is not created?

  1. There might be a chance that some not so close relative comes and asks for a share in your assets if a will is not created. 
  2. Family disagreements on the share of the assets might ruin the cultural values and relations that you have built for years. 
  3. A will mentions who should take care of your children. Without a will, the court will decide on this. 

So, one must take the help of a good attorney and make the will that clearly indicates who are the beneficiaries and how many shares will each beneficiary get in the assets. 

Now, there are two important terms related to your will or estate plan that must be known to make sure you created your will in the right manner. These terms are “per stirpes” and “per capita” distributions. It will decide how your beneficiaries will get your assets (how the assets will be shared). 

Today, we will know per stirpes vs per capita difference and understand in detail what each term means. 

per stirpes vs per capita

source: investopedia.com

Per Stirpes Distributions

Per stirpes definition is like if any of your beneficiaries are not living at the time of your death then the property share of that beneficiary will pass onto his/her successors (if any). Let’s understand it by example. 

Suppose you have 3 sons: A, B, and C. Son A has two sons: A1, A2. B and C are having no successors. Now, if your will is to be distributed among all your beneficiaries, per stirpes then here what will happen. 

Scenario 1:

If A, B, C, A1, A2 all survive you then 

A, B and C will receive 1/3rd share and A1, A2 will receive nothing. 

Scenario 2:

If A has deceased you and B, C, A1, A2 survive you then 

B and C will receive 1/3rd share

A1 and A2 will receive 1/6th share

Scenario 3:

If A, C, A1, A2 has survived you and B dies before you then

A and C will get ½ share

A1 and A2 will receive nothing

Per stirpes is used in estate planning when you have a big family and want to include the son’s children in the beneficiaries. You can consult with your attorney while you create the will and they will guide you in perfectly creating the will and sharing the properties by this term.

per stirpes vs per capita

source: wiseradvisor.com

Per Capita Distributions

Per capita distribution is very simple. It gives for an equal share of your assets to the beneficiaries that you have named. 

For example, considering the above example once again, let us assume that you want to make a will and distribute your properties to the living descendants, per capita then following scenarios can take place. 

Scenario 1:

If all A, B, C, A1, and A2 have survived you then

Each of them will get 1/5th share. 

Scenario 2:

If A, B, A1, and A2 have survived you and C dies before you then

A, B, A1, and A2 will get 1/4th share.

Scenario 3:

If B, C, A1, and A2 survives you and A dies before you then

B, C, A1, and A2 will get 1/4th share. 

In conclusion, the number of people alive will get an equal share in per capita distribution. 

 per stirpes vs per capita

source: thebalance.com

Also Read: Everything you Need to Know: How to Become a Financial Advisor

Contingent Beneficiary

Another term that you should be knowing is the contingent beneficiary. If the primary beneficiary dies or his/her contact is not taking place or he/she refuses to accept the beneficiary then the contingent one will get the share of the assets. 

A contingent beneficiary can be a person, an institution, organization, charity trust, etc. If any minor is selected as the contingent asset holder then a legal guardian has to be appointed who will take care of the money or asset until the minor reaches the age where he can then take the responsibility. 

Usually, immediate families are assigned as the primary beneficiaries and close relatives or close friends are assigned the contingent beneficiaries. One should name the contingent asset holders as it is very helpful; even if the primary beneficiary dies then also there is no confusion that who shall get the assets now. 

So, here was an overview of per stirpes vs per capita distributions, and contingent beneficiary. I hope you got a clear idea of it. 

Now, when you are making your estate plan or will, consider these terms to distribute the assets in the right manner as per your wish. Take the help of a good attorney to create your estate plan and they will guide you to create the perfect will that you want to have. 

If in any case, you need to change your beneficiary list then take it to your attorney with the help of whom you created the will and update it. For more information. visit Financeshed.