What is per stirpes and per capita? Paul L. Moffat, President and Senior Financial Planner at Arista Wealth Management, explains in the newest episode of Arista Advice!
Hello, welcome to Arista Advice! Question of the week is: "Paul, help me understand per stirpes versus per capita?" If you own any assets, you need to be aware of how those assets are going to be distributed. Through a trust or an IRA, or a Roth, or a 401(k), it is often referred to as beneficiaries. But inside a trust or a taxable estate and in a will or an estate plan, it's usually done by per stirpes or by per capita.
Let's take a look at what these two differences are. As you'll see on this graph, the per stirpes and per capita refer to two different ways of distributing assets a when beneficiary predeces you. A trick to help you remember the difference between per stirpes versus per capita is that per stirpes is branch and per capita is by the heads.
As you’ll see with this graph, the per stirpes, the assets of the deceased beneficiary, passes to their heirs. This type of distribution method ensures that each branch of the family tree is provided an equitable asset, meaning children. So each child gets their allocation and allotment However, spouses are excluded from per stirpes distributions. If any of the named beneficiaries predeceased the testator, the portion they were set to inherit will be split evenly among their own heirs.
Now, with per capita, this is really, really important to understand the two differences with per capita and per stirpes. With per capita, the property of the deceased beneficiary is returned to the estate and are distributed between the remaining living beneficiaries. The per capita splits the estate's assets equally among the decedents in the nearest generation who have survived the testator. Should any of the beneficiaries pass away prior, the share would go back to the estate unless the testator has explicitly stated in their will and trust that the children and grandchildren should be considered equal inheritors.
So there's pros and cons with per stirpes and per capita. Just remember that life provides changes, and things happen and you always need to be updating and reviewing the per stirpes and the per capita. Remember, per stirpes is branches and per capita is the heads of the surviving beneficiaries.
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