What does it mean to divide an inheritance fairly?
For some families, fairness means every child receives the same amount. For others, it means making sure each branch of the family is treated equally, even when children or grandchildren pass away at different times.
These questions may seem simple when you first create an estate plan. But what happens if one of your children dies before you? Should that child’s inheritance pass to their children? Should it be divided among your surviving children? And if several children pass away before you, should all of your grandchildren receive equal shares?
This is where terms such as per stirpes, by representation, and per capita become important.
Each describes a way property may be distributed when a beneficiary dies before the person whose estate is being distributed. The differences can significantly affect what your children and grandchildren ultimately receive.
The terminology and rules can vary depending on state law and the language used in your estate planning documents. That is why understanding not only the term, but also what your documents actually say, is an important part of creating an intentional estate plan.
What Happens When a Beneficiary Dies Before You?
Imagine that you have decided to leave your estate equally to your children.
If all of your children survive you, the distribution may be straightforward. Each child receives the share you intended for them.
But suppose one of your children dies before you and leaves children of their own.
What happens to that child’s share?
Depending on your estate plan and the applicable law, it may pass to that child’s descendants, be divided among your surviving children, or be distributed another way.
This is where the distribution method written into your estate plan matters.
What Does Per Stirpes Mean?
Per stirpes is a Latin term that means “by branch” or “by roots.”
Under a traditional per stirpes distribution, your estate is divided among your children’s family branches. If one of your children dies before you, that child’s share generally continues down their branch of the family to their surviving descendants.
Consider this example.
Arthur has two children, Becky and Carl. Becky has four children, and Carl has one child.
If Becky and Carl both survive Arthur, each receives one half of Arthur’s estate.
Now suppose Becky dies before Arthur.
Instead of Becky’s one half share being added to Carl’s inheritance, Becky’s share passes down her family branch. Her four children divide her one half share equally, so each receives one eighth of Arthur’s estate. Carl still receives his one half share.
If both Becky and Carl die before Arthur, the same family branches remain.
Becky’s four children divide Becky’s one half share, while Carl’s only child receives Carl’s one half share.
That means Arthur’s five grandchildren do not receive equal inheritances. Becky’s four children each receive one eighth, while Carl’s child receives one half.
Why?
Because per stirpes is designed to preserve the share belonging to each family branch rather than create equal shares among every surviving grandchild.
What Does By Representation Mean?
A distribution by representation generally allows descendants to receive the share their deceased ancestor would have received if that person were still living.
The outcome can look different from a traditional per stirpes distribution when an entire generation has passed away.
Using Arthur’s family again, suppose both Becky and Carl die before Arthur.
Under the example of by representation used here, the distribution moves to the grandchildren’s generation. Arthur has five surviving grandchildren, so the estate is divided equally among those five grandchildren.
Each grandchild receives one fifth of the estate.
Compare that with the traditional per stirpes example.
Under per stirpes, Becky’s family branch receives one half and Carl’s family branch receives one half.
Under the by representation example, all five grandchildren receive equal shares.
That distinction may seem small when you are reading an estate planning document, but it can create a very different result for your family.
Because states and estate planning documents may define by representation differently, the specific language in your documents and the applicable law should always be reviewed carefully.
What Does Per Capita at Each Generation Mean?
Per capita means “by the head.”
With a per capita at each generation distribution, the estate is generally divided at the closest generation containing at least one living descendant. Living descendants at that generation receive their shares, while the shares associated with deceased members of that generation are combined and divided among eligible descendants in the next generation.
Consider another example.
Arthur now has three children: Becky, Carl, and Diane.
Becky has four children. Carl has two children. Diane has one child.
Becky and Carl die before Arthur, but Diane survives him.
Arthur’s estate is initially divided into three equal shares.
Diane receives her one third share.
The shares that would have gone to Becky and Carl are combined. Together, those shares represent two thirds of Arthur’s estate.
That amount is then divided equally among Becky and Carl’s six surviving children. Each grandchild receives one ninth of Arthur’s estate.
Diane’s child does not receive a share because Diane is still living and receives her own share.
The defining characteristic of this approach is that shares belonging to deceased beneficiaries at one generation are combined and then divided equally among the eligible descendants at the next generation.
Which Distribution Method Is Fair?
This is where estate planning becomes much more personal than simply choosing the right legal terminology.
Each of these distribution methods attempts to create some form of fairness.
But fairness means different things to different families.
You may believe each of your children’s family branches should always receive the same percentage of your estate.
You may believe grandchildren of the same generation should ultimately receive equal amounts.
Or your family circumstances may lead you to make a completely different decision.
There is not one distribution method that reflects every family’s values, relationships, and intentions.
What Do You Want to Happen, and Do Your Estate Planning Documents Clearly Accomplish That?
Your Estate Plan Should Reflect Your Intentions
Terms such as per stirpes, by representation, and per capita can sound like technical legal language.
But behind those words are real people.
Your children.
Your grandchildren.
The people you love and the legacy you hope to leave them.
Thoughtful estate planning is not simply about dividing property. It is about making intentional decisions regarding the people and resources God has entrusted to your care and providing clear direction for the people who may one day carry out those decisions.
At Faithful Stewardship Law Firm, we help families understand their options so they can create an estate plan that reflects their values, their family circumstances, and their intentions for the future.
You do not need to understand every legal term before beginning the estate planning process. That is part of what we are here to help you navigate.
Ready to Put a Thoughtful Plan in Place for Your Family?
Schedule your complimentary consultation with Faithful Stewardship Law Firm today.