Per stirpes vs. per capita distributions are essential to understand if you are planning your estate or in the process of having a loved one’s will probated. Understanding these beneficiary types can help you protect your family from hefty estate taxes and preserve more of your wealth for future generations.

So, we created a guide to help you understand the differences in per stirpes vs. per capita distributions. Read on to learn which is right for your estate or what each designation means for your inheritance.

What are Distribution Designations?

Distribution designations determine the intestate succession of your assets. They dictate how you want investments divided if one of your beneficiaries dies before you in some cases. In others, they dictate how to divide royalties or trust property. 

Distribution designations are different from beneficiaries. The beneficiaries you name will always be first in line to receive an inheritance from your estate. The distribution designations tell the court how to handle your heirs’ shares if they die before you. 

In your will, an attorney may include all of your beneficiaries and per stirpes or per capita verbiage. If you form a family trust, you would likewise name all beneficiaries and select either peer stirpes or per capita succession. You may also add them to investment accounts, bank accounts, and other parts of your estate.  

Per Capita Beneficiary Designation

The per capita beneficiary designation means that if one of your beneficiaries dies before you, their share of your estate will be divided amongst all your other beneficiaries. 

Examples of Per Capita Distributions 

Suppose you have per capita distributions and one of your beneficiaries dies before the court probates your will. In that case, their share will be split evenly amongst the other beneficiaries in your will. 

So, if you give $5,000 to each of your four children and one dies before you, their portion would be divided three ways. So, your remaining heirs would receive their $5,000 plus $1,666,67. 

Per Stirpes Beneficiary Designation

Per stirpes distributions are shared amongst the living blood heirs of your heir. But, they can’t be passed on to non-blood or legal relatives. If you stipulate that you want per stirpes distributions, they will only pass down to the children of your heirs, not to their spouses. 

Examples of Per Stirpes Distributions 

With the per stirpes designation, if one of your heirs dies before you, their portion of your estate would go to their living children. So, if you give each of your four children $10,000 in your will, but one of your children dies before you, your other children would not receive any additional money. 

Instead, if your deceased child had two children, the $10,000 would be split between them. So, they would each receive $5,000. 

How to Choose the Distribution for Your Estate

Your election for distributing your estate is a personal decision. You may want to set up a trust if you have significant assets to pass down to protect your family from the estate or generation-skipping transfer taxes. 

Generation-Skipping Transfer Tax

Generation-skipping transfer tax prevents people from passing assets down to younger heirs to avoid paying estate taxes. Suppose you put your money in a trust that allocates the maximum distribution at the time of your death. The remaining balance can transfer to your younger heirs without paying the generation-skipping transfer tax. 

How to Ensure Your Assets are Properly Distributed

You can ensure that your assets are appropriately distributed in several ways.

Write a Will

A will is the best way to ensure that your assets are appropriately distributed after death. Writing a will is not complicated if you have few possessions. However, if you own many different properties, businesses, and other assets, you will likely want to have an estate attorney draw up a will that includes all of them. 

If you do not have a will when you die, the probate court in your state will determine how to distribute your assets. Probate courts will follow those directives if you have beneficiaries designated on specific investments. 

Add Beneficiaries to Your Accounts

If you have someone you want to leave your assets to, you can add them as a beneficiary on your accounts. You will need to fill out a designation of beneficiary form. You can get this form from your bank, IRA management firm, or insurance company. 

Make Sure You Do Not Have Conflicting Designations

Throughout life, you will likely acquire many assets. It is a good idea to ensure that your asset distribution designations match. For example, you may have to select a beneficiary for each bank account, life insurance policy, stocks, businesses, mineral rights, and the property you own. 

If you write a will, make sure that the designations you set forth on your accounts match your will. Otherwise, your family members may have a challenging time in probate court. 

Set Up a Trust

A trust is an excellent way to protect your assets. In the trust documents, you will include procedures on how the trust is to carry on after you are no longer living. Trusts are common in families with significant assets. 

Trusts often follow the per stirpes distribution, meaning the assets belonging to the trust will always carry on to a blood relative. However, that is not always the case. 

Per Stirpes vs. Per Capita Distributions FAQs

Deciding whether your estate will follow a per stirpes or per capita distribution is a big decision. Check out the answers to the frequently asked questions about these distributions for more information. They might make it easier to decide. 

Can I Choose a Per Stirpes or Per Capita Beneficiary for My IRA Account?

Yes, you can designate per stirpes vs. per capita beneficiary for your IRA. Contact your investment management company and ask them for the beneficiary document. In the paper, you will need to list the names, date of birth, contact information, and potentially their social security numbers. 

Is a Spouse Considered a Descendant Per Stirpes?

No, spouses are not considered descendants if your estate designates per stirpes distributions. So, assets passed down would only go to blood heirs of yours, meaning your kids, grandkids, great-grandchildren, and so on. 

Which is Correct for Your Estate, Per Stirpes vs. Per Capita Distributions?

Deciding how courts will distribute your assets can have significant tax implications for your heirs. When you only have a few assets, designating per stirpes vs. per capita distributions is not as important a concern. 

If you worked hard and saved to provide future heirs with generational wealth, you would likely want to hire a probate attorney to help you write a will or form a family trust. They can help you determine which way will best protect your family and the wealth you worked hard to build.