What do I Need to Know About "Per Capita" and "Per Stirpes"?

Different states have different laws.

You have created a will.

You have taken an important step in estate planning, but there is more.

Really?

Yes.

According to a recent Benzinga article titled “Estate Planning: What Are Per Capita And Per Stirpes Beneficiary Designations?,” an often overlooked aspect of estate planning involves beneficiary designations.

What are beneficiary designations?

Beneficiary designations are the method used to name inheritors for certain accounts such as IRAs, 401(k)s, annuities, or life insurance policies.

These designations are made specifically on each account and take precedence over instructions in a trust or a will.

You should include a primary and a contingent beneficiary.

People can get into big trouble if they do not update these beneficiaries after major (and even minor) life changes.

What happens if your primary beneficiary dies before you make updates and you have no contingent beneficiary?

The account will pass by default according to the state law and your original agreement.

This usually happens in one of two ways.

The first is “per capita” distribution.

What does this mean?

The share of any beneficiary preceding you in death would be equally distributed among your other children, regardless whether the predeceased child had children.

The other is “per stirpes” distribution.

In this case, the assets take generations into consideration.

If you left a "per stirpes" share to your child, his or her children would receive it in equal parts.

Could it pass to a spouse?

In most cases, spouses are left out of per stripes distribution, since they are neither born to or adopted into your bloodline.

To ensure you have the most control over your assets, you should review and update your beneficiary designations regularly.

Start by listing all your accounts.

Without this list, thorough updating may not be possible.

As life changes, so should your estate planning documents.

Reference: Benzinga (December 26, 2018) “Estate Planning: What Are Per Capita And Per Stirpes Beneficiary Designations?”