Life insurance benefits can be divided between beneficiaries per stirpes or per capita, and your choice will depend on family dynamics and personal preference.
Per stirpes distribution involves passing assets to descendants (usually children) of deceased beneficiaries to prevent unwanted individuals, such as former partners or guardians, from receiving an inheritance.
What is per stirpes?
Per stirpes is a term commonly found in inheritance and estate law that refers to an asset distribution method for when one of a testator’s beneficiaries passes before them. Like per capita distribution options, per stirpes works differently under certain circumstances.
Per stirpes is a designation method designed to ensure that when one passes, their share of their estate goes to their descendants regardless of when or if they were born. By choosing per stirpes as their means of distribution, beneficiaries ensure their families reap the full benefit of your estate after your passing.
When using the “per stirpes” designation in their will, beneficiaries inform their executor that any inheritance from them should they predecease will be distributed equally between their descendants if any survive him/her; non-lineal descendants such as grandchildren and great-grandchildren also qualify as descendants for per stirpes division; this does not apply to siblings or parents of beneficiaries however.
Example: Mary leaves two children behind – John and Kevin. If Mary’s estate is split equally, John and Kevin would each inherit one-third. On the other hand, Kevin’s children would only receive half as they are one generation closer than his siblings to Mary, who has passed.
Per Stirpes, designates can save time and money when creating a will, as it eliminates the need to list contingent beneficiaries for every possible scenario. Furthermore, as it only passes on inheritance through lineal descendants, it is simpler to track than other inheritance arrangements involving multiple family members.
What is per capita?
Per capita is an economics and other field measure that quantifies the number of individuals within an area or group, from states to individual cities. It allows direct comparison with other measurements like GDP or population density for a candid assessment of an area’s size.
Legally speaking, “per capita” refers to how an estate or other assets will be distributed among multiple beneficiaries. For instance, a testator might name his/her spouse and children as beneficiaries under their life insurance policy, with each person receiving an equal share. Should one or more beneficiaries predecease before inheriting those shares according to specific rules?
Say the testator names their son and daughter as per capita beneficiaries on a $1 million retirement account then should either wife and son both predecease each other, then $500,000 of that designated for the daughter will go directly to her surviving brother by default. At the same time, the remaining inheritance will be divided equally among surviving daughters.
Or the testator could opt for per stirpes distribution, which provides more flexibility and rewards a grantor’s most prolific descendants while being more complex to administer.
Example: Let’s say the testator names his or her sons and grandchildren as per stirpes beneficiaries on a $1 million life insurance policy. Should the father die first, his or her sons would divide his/her share equally among themselves while two-thirds will go directly to descendants of the deceased daughter according to set rules?
Per stirpes is also helpful in estate planning as it eliminates the need for frequent will revisions when beneficiaries pass away or have children. However, its implementation might leave some family members out in the cold if done improperly.
How is per capita determined?
The per capita method evenly divides estate assets among beneficiaries listed in their distribution order, regardless of any relations among them or generations involved in inheritance. When someone dies before distribution can occur, their share will either pass to their descendants via representation or, if none were present at their death, to siblings of the deceased beneficiary.
Per stirpes with representation is limited in that descendants equally related to a deceased can receive unequal shares of his/her estate; however, per capita at each generation provides an easy solution by pooling together shares from members who have passed and dividing it among those who remain and their surviving descendants. Using this variation allows each of their deceased ancestor’s descendants to inherit an equal portion regardless of their rank in distribution order.
Finding the most suitable model for estate planning depends on your personal and family preferences, while both options offer distinct advantages. Finding an optimal choice could be how you want your beneficiaries treated after you pass.
If you have multiple primary beneficiaries who share solid familial ties and are close to you, per stirpes distribution might be the right option to ensure each will get an equal share in your estate and avoid potential disputes.
Per capita distribution may be preferable if your beneficiaries are dispersed across several generations of family. This approach would give them an equal share, regardless of how close or distant they may be from you.
If your life insurance policy includes payments to loved ones after death, per capita death benefit distribution should be the default method. This means that should any beneficiary die before receiving their share equally among all remaining beneficiaries.
If you opt for a per capita death benefit payout plan, consider creating a trust to manage the benefits and avoid messy divorce battles after your passing. A Policygenius agent can explain all your options and help your family select an optimal plan.
How is per capita distributed?
As you draft a will or revocable living trust, you will likely come across the terms per stirpes and capita when discussing asset distribution among beneficiaries after your death. These Latin terms refer to different ways assets may be divided up among recipients in such an instance, so it is crucial that you fully comprehend their differences as it could impact future family members’ financial well-being.
Per stirpes distribution ensures that each beneficiary closest to the testator receives their share equitably, including children, grandchildren, and other descendants of that beneficiary. It ensures that no inheritance will go uncovered if one of their descendants predeceases them; their share would then pass down through per capita distribution instead. However, per stirpes distribution can have disadvantages: should one beneficiary predecease another and pass their claims to their descendants instead?
Assume, for instance, that Connie leaves her assets to her son and daughter beneficiaries under a per stirpes distribution method. Should either daughter predecease her mother, then their inheritance would pass directly onto Cara and Russ’s per capita distribution method instead – this means each beneficiary would get equal shares despite not having been named in Connie’s will.
It is up to each testator to choose either per stirpes or per capita as their estate distribution method. Per capita often prevents infighting among beneficiaries and simplifies dividing up an estate; however, large estates could become more complex to settle, with potential risk associated with generation-skipping transfer taxes being applied directly against all of it. It would be wiser for an experienced estate planning attorney to help decide on the most suitable distribution method for them.