Most people assume that their wealth will go first to their spouse, and then to their kids, but are often hazy on the details of what that means. In estate plans, as well as in the beneficiary designations for life insurance and retirement accounts, you may find language like “per stirpes,” “per capita at each generation,” or “by representation.” Each of these phrases change the way that an estate is divided among beneficiaries.
Per Stirpes
Per Stirpes is the most common way to determine what fraction of your estate each of your heirs receive. Here’s how it works. Mom has three kids, Alice, Betty, and Cathy. Alice has three kids, David, Emmett, and Frank. Betty has one child, Gerald, and Cathy has two children, Harvey and Isaac. When Mom passes away, if all three of her children are living (Alice, Betty, and Cathy), they each inherit 1/3 of her estate. However, if Alice died before Mom, then Betty and Cathy each inherit 1/3 of the estate, while David, Emmett, and Frank will inherit 1/9 (because 1/3 divided by 3 is 1/9).
If both Alice and Betty die before their mother, then Cathy inherits 1/3, David, Emmett, and Frank all inherit 1/9, but Gerald (the only child of Betty) inherits her full 1/3 share. This can feel unfair – afterall, David, Emmett, and Frank inherit less simply because they have siblings while Gerald doesn’t. What’s more, if all three of her children predecease her, then Mom’s estate will be 1/3 to Gerald, 1/9 to David, 1/9 to Emmett, 1/9 to Frank, 1/6 to Harvey, and 1/6 to Isaac.
By Representation
The effect of dividing the shares “by representation” is very similar to per stirpes. In fact, we get the same results as per stirpes for most of the scenarios above. Where it is different is when all three of Mom’s children pass away before her. In that scenario, the generation of Alice, Betty, and Cathy are ignored, and the estate is divided based on the number of total grandchildren: 6. In this circumstance, each grandchild will receive 1/6 of Mom’s estate.
Per Capita at Each Generation
At first, per capita at each generation also looks the same as per stirpes. However, where it varies is when both Alice and Betty have predeceased Mom. Instead of dividing the share that their parent would’ve received, each of the thirds that Alice and Betty would’ve received are combined and then divided by the number of their children, since they are at the same generation. In this scenario, Cathy inherits 1/3, while David, Emmett, Frank, and Gerald all inherit 1/6 (or 2/3 of the estate, divided by 4 grandchildren).