Understanding per capita vs per stirpes designations
I know I typically use these blogs to speak about different ways to remain active, or, how to be social during a health related quarantine. This time, however, I would like to discuss something that could directly affect your family and loved ones. It is something that I shall refer to as Per Capita (Pro Rata) vs. Per Stirpes. A lot of you may be wondering right off that bat, what do those words even mean and how they relate to your family. In their most basic form, both per capita and per stirpes are methods of allocating your assets to their intended beneficiaries once you pass on. In this blog, I will showcase the major differences between the two so I can best help you set up your trust accounts.
First and foremost, there is an easy way to think about each; Per capita is “horizontal equality,” and Per Stirpes is “vertical equality,” which will make more sense after the following example, given to us from Matt Klieger, an estate attorney associated with The Pinnacle Financial Group. According to Matt:
“For Per Capita, let’s say John Smith has an investment account and names his
four children (A,B,C and D) as equal beneficiaries. All four children have children
of their own. If, upon John’s death he is only survived by C and D (A and B both
died before John), A and B’s 50% share will go equally to the surviving beneficiaries,
C and D. It doesn’t matter that A has 5 children and B has 3 children who can all
use the money, because everything get distributed equally at the first level there’s
at least one survivor. Most of my clients do not like to leave assets to their heirs and
beneficiaries Per Capita because they wish for A’s share to go to A’s children if A is
no longer alive and same with B, which is why we have Per Stirpes.With Per Stirpes, in the same example as above, A’s 25% share would go to A’s
children and same with B’s 25%. Which is why this is called “vertical equality.”
If A’s 25% can’t go to A because A is no longer alive, A’s share goes down A’s
bloodline to the next level.”
This breakdown can still be confusing. What it basically says is that organizing your investment accounts on a Per Capita basis divides your assets according to your sole survivors, regardless of their living family/heirs. Typically this means that if you have one beneficiary with no children, and another beneficiary with 5 children, your account is being divided disproportionately to individuals in your family with, potentially, a lessened need. Alternatively, organizing your investment account “Per Stirpes,” your capital will be distributed among your living heirs according to need. This is strictly financial, and only matters according to heirs and beneficiaries that you directly name, which is why per stirpes, as matt says, is chosen a majority of the time. In fact, after reaching out to a number of industry professionals, they were unaware that there were even multiple options to choose from, and, the purpose of this blog, is to introduce you to a new way to organize your accounts. I am not only hopeful, but looking forward to discussing this options in depth with you, your family, or your beneficiaries.
