Per Stirpes or Per Capita: Two Words That Could Undo Your Estate Plan

No one relishes the idea of planning for their own death, but the alternative of not planning and leaving your family members to sort out a mess is a poor way to be remembered. According to a recent article from Kiplinger, titled These 2 Words Could Send Your Retirement Money to the Wrong Beneficiary,” knowing the difference between per stirpes or per capita could save you from accidentally cutting someone out of your will.

per stripes vs per capita
Understanding the difference between per stirpes and per capita could make all the difference.

First, always be sure the beneficiary designations on your retirement accounts, insurance accounts and any other accounts that allow you to have a named beneficiary, match up with your will and your wishes. Property and assets outside of your retirement accounts will be distributed by other estate planning tools, like trusts, or TODs (Transfer on Death) for jointly held assets. If you don’t make plans, most of your estate will go through probate. It’s can be expensive and time consuming, but with the right planning, it can be avoided.

Most people name their spouse as the primary beneficiary on their retirement account. If you don’t wish to do this, you may have to fill out paperwork and have your spouse sign a waiver agreeing to your plan. State and Federal laws protect spouses, when it comes to certain types of retirement accounts, unless waived. After naming your primary beneficiary, you name contingent beneficiaries. If you are married and have children, it’s likely that your children will be your contingent beneficiaries. No children? In that case, a niece or nephew or other family member is usually named. By the way, if you want to give to charity, then retirement funds are the perfect asset to give.

The next decision to make is the key one: per stirpes or per capita. This step is often missed, because it’s not used on every asset form. Per stirpes is a Latin legal term that simply means if your primary beneficiary dies before you die, their next of kin inherits your assets. The alternative is per capita. By choosing per capita, your money only goes to your other primary beneficiaries.

Here’s an example of how per capita might work.

Imagine a grandmother, daughter and granddaughter. The daughter is the primary beneficiary on the grandmother’s retirement account, but the grandmother forgets to name a contingent beneficiary.

If the daughter dies before the grandmother and the daughter is still listed as the primary beneficiary when the grandmother dies, the money won’t go the granddaughter. The money will go through probate and the court would decide who receives the money. Had the grandmother selected per stirpes, the money would have gone straight to the granddaughter, even if she were not listed as a contingent beneficiary. When you choose per stirpes, the next of kin to your primary beneficiary (or your heir’s heirs) receive their share of your property.

Per capita ensures that your money goes to your primary beneficiaries only. Per capita is also typically the default option most retirement savers have in place right now.

Depending on how you want your inheritance handled, it’s easy to see how not knowing when to use per stirpes or per capita could be a costly estate planning mistake.

Reference: Kiplinger (July 30, 2020)These 2 Words Could Send Your Retirement Money to the Wrong Beneficiary

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