Lisa and Ken (both age 65) have three children and seven grandchildren. The couple has a last will and testament, but as they age and have grandchildren, they plan to meet with their estate attorney to update their estate documents and discuss how to best allocate and distribute their assets to their children and grandchildren.

Two of the couple’s three daughters are married. Each couple has two children. Lisa and Ken’s third daughter is an unmarried mother of three children. Each of her three children has a different father.

This complicated family tree has led Lisa and Ken to consider whether they should distribute their estate assets equally between their three daughters or equally among all their beneficiaries. With their one daughter having three children and greater financial need, they question whether they should give her and her children a larger share of their assets.

Per Stripes Distribution

According to per stripes distribution, assets are distributed by branch or lineage. If a beneficiary passes away before the person creating the Will or trust, their share of the estate is passed on to their descendants and is typically divided equally among them.

Per stripes distributions ensure that each branch of the family receives its share of the inheritance, even if the original beneficiary is no longer alive.

Assume Lisa and Ken’s estate is valued at $6 million. Using per stripes distribution, each of their daughters and their beneficiaries would receive their share of the inheritance, whether Lisa and Ken’s daughters were alive or not.

For example:

Assume Lisa and Ken’s oldest daughter (Meg) predeceases her parents. If Lisa and Ken’s Will or Trust requires a per stripes distribution, their estate would be divided into three blocks of assets, each valued at $2 million.

Meg’s two children would each receive $1 million from the estate. They would share the distribution intended for Meg’s branch of the family.

Lisa and Ken’s other two daughters would receive their $2 million distribution from the estate.

If Lisa and Ken’s youngest daughter (Kim) also predeceases her parents, her children would each receive one-third of Kim’s $2 million distribution from her parent’s estate. If the children were minors, their fathers could manage their shares, an outcome that Lisa and Ken might not have anticipated.

A per stripes distribution ensures that each of Lisa and Ken’s three daughters and their beneficiaries receive their share of the estate, whether or not the daughters predecease their parents. However, if the daughters have predeceased Lisa and Ken, the grandchildren will receive unequal shares in the estate.

Per capita Distribution

A per capita distribution divides the estate assets equally among the living beneficiaries, regardless of their family relationships or lineage. If a beneficiary should predecease the person creating the Will or Trust, their share is not passed on to their descendants. Instead, it is redistributed equally among the surviving named beneficiaries. Shares in the estate are not automatically passed on to the next generation.

A per capita distribution ensures that each beneficiary receives an equal share of the inheritance without regard to family branches.

If Lisa and Ken chose a per capita distribution and all three of their daughters were alive when they passed, they would each receive assets valued at $2 million.

Assume Meg predeceases her parents. Her share of the estate would revert to the estate to be equally divided among all living beneficiaries.

If Meg and Kim both predecease their parents, then their shares would be equally divided among all living beneficiaries who are named in the Will or Trust.

What happens with per capita distribution if Lisa and Ken state that their property and assets should be distributed to their then-living descendants per capita?

If all three daughters and seven grandchildren were named in the Will as beneficiaries and were alive when Lisa and Ken died, then each living beneficiary would receive 1/10^th of the estate. If one or more of these named beneficiaries dies before the estate assets are distributed, then their share would be equally divided among the remaining living beneficiaries.

Lisa and Ken’s Will could also stipulate that their property is distributed to the living descendants per capita at each generation. In this case, Lisa and Ken’s assets would be divided equally between living beneficiaries, one generation at a time.

Conclusion

Per stripes and per capita distributions can simplify your estate plan so you don’t have to adjust your Will or Trust each time there is a change in beneficiaries. However, each of these choices has tax and other implications. If you don’t designate how your property will pass to your heirs, your state’s rules for intestate succession will be applied instead.

Talk with your estate attorney to discuss potential scenarios for each of these estate planning distribution options.

If you are ready to start or update your estate planning documents, schedule a call with us at 855.631.3457 to learn more about how to protect those most important to you.