The beauty of making money doesn’t just end with the fat bank accounts and overflowing assets — there’s always a great score point for a great legacy!
The terms “per stirpes” and “per capita” are important in understanding how the property you leave behind as you take a trip out of planet earth will be shared with others. Particularly, these terms apply to inheritances.
Before you choose which one to go for which, I think it’s pertinent we draw a big picture that gives you a practical insight of what Per Stripes and Per Capita and how it applies in the course of the sharing.
In this article put together by The Wealth Circle, we’ll be firing from both ends. It’s Per Stirpes vs Per Capita.
Don’t forget, whether you make a will or die without a will, Per Stirpes and Per Capita determine, in part, how inheritances are distributed to your heirs.
What Does Per Stirpes Mean?
Per stirpes, a Latin word that means “by roots” is a legal term that stipulates that should a beneficiary dies before the testator, the beneficiary’s share of the inheritance goes to his heirs.
Per stirpes is a designation you can include when delegating beneficiaries that stipulates how your assets should be transferred if any beneficiaries pass away before you. With a per stirpes designation, any amount that you leave for a beneficiary that predeceases you will be passed down evenly to his or her children. Per stirpes generally refers to every person lower down in a family tree, with spouses generally excluded.
As you build your estate, you should understand what the per stirpes designation means and how it can impact your loved ones. (SEE ALSO: 13 Ways to Make Money in Real Estate with no Money in 2021)
How Per Stirpes Works
Per stirpes, Latin for “by roots” or “by branch,” refers to every person down a family tree beginning from another person.
In a practical sense, here’s how it works — Whatever asset or property parent would have been entitled to receive from your estate moves to her children is she dies before the testator. Let’s say she has two children, each of them will receive a one-half share of your estate. But if one of your children should predecease you, her one-half share would pass in its entirety to her children.
If she is the parent of three of your grandchildren, each of those grandchildren would receive 1/3 of her 1/2 share of your estate, or 1/6. Your other child would still receive his one-half share and your deceased child’s one-half share would be split equally among her three children. One-half divided by three equals 1/6 of your
So the idea here is, in the absence of a parent as a result of death, the bequest goes to the direct descendants. Your grandchildren will receive nothing — at least while their parents are living.
RELATED POST: Best Income Producing Assets You Should go for
What is Per Capita?
Per capita means “by the heads.” Also called “share and share alike,” property is divided equally among surviving descendants in the same generation nearest the testator. The estate holder names each recipient individually or determines which group receives the assets, such as all estate holder’s children, grandchildren, or both.
A share won’t be created for the deceased member and all of the shares of the other members will be increased accordingly if a member of the identified group is deceased.
Learn from the best, see the Top 20 real estate moguls in the World
How Does Per Capita Work?
In a practical sense, here’s how Per Capita distribution works: Nick specifies her estate be divided per capita among her three children, Abby, Mike, and Jack. Scott has two children—Cora and Max. If Abby dies, her portion remains with Meg’s other assets and is divided equally among her two living children, Mike and Jack. Cora and Max do not inherit anything.
Per Stirpes vs Per Capita
Choosing one against the other might not practically make sense. Because each of the two designation methods has its peculiarity.
With per stirpes not there as your only choice. You can also elect to distribute your assets per capita, which means ‘by heads’. This method awards equal shares of an estate to each member of the same generation. Shares of the predeceased essentially are shared amongst other benefactors. Importantly, per capita provides every specified living descendant with an equal share of the grantor’s estate. No unnamed beneficiaries stand to inherit anything.
Per Stirpes on the other hand allows for equal distribution of properties amongst the predeceased children. The term stipulates that should a beneficiary dies before the testator, the beneficiary’s share of the inheritance goes to his heirs — unlike Per Capita where the children of the predeceased receive nothing unless the will explicitly state their names.
So which is better? Per capita is more generous to a larger pool of descendants as it incorporates a larger number of descendants and not just the first family on the tree. Nevertheless, people more commonly use Per Stirpes. For most grantors, it makes no sense if the beneficiary’s heirs are locked out in times where the beneficiary dies before the testator. To them, the idea of having an heir receive his or her share of the assets covers the typical family dynamic.
RELATED POST: Best Property Management Companies in the U.S
What Are They Similarities Between Per Stirpes and Per Capita?
Though these two beneficiary designations might differ in the aspect of sharing formula, they meet at a factual standpoint as beneficiary designations used in the allocation of properties.
While Per capita fancies the distribution of properties per equal heads, per stirpes also allows for the distribution of properties per head — but this time amongst immediate family according to the family tree.
With this, we can agree that Per Stirpes and Per Capita though seemingly different, stands out to be a sharing formula for property allocation amongst a family tree.
It is pertinent to specify in your asset sharing, will, or estate planning so as to leave the right legacy and make sure the properties are well allocated.
Whether you choose Per Stirpes, Per Capita, or some other method to distribute your assets, make sure you know what each and every beneficiary designation entails so as to make the right decision and avoid what might sound uneven to the testator.