Estate planning attorneys have their own arcane jargon, and those outside the field might find some of it baffling. But having some idea of where you want your assets to go will help you put it all together when you meet with your attorney. Hopefully, this article can give you a little information to consider as you begin to set your estate plan in motion.
There are a couple terms often used in determining how one's assets shall be divided: per stirpes and per capita. These two often-confusing yet important terms can yield different outcomes for your descendants. Knowing which one is best for you and your family is a topic you can discuss with your attorney.
Per Stirpes: Each branch of
the named person's family receives an equal share of the estate. If all
children are living, each child would receive a share, but if a child is not
living, that child's share would be divided equally among the deceased child's
children. It is sometimes called "by right of representation." Per stirpes is by far the most common
distribution method used in Minnesota.
Per Capita: This
is a method of distributing property whereby the surviving descendants of a generation will
share equally. It's sometimes called "per capita at each generation."
Below is an example of
how assets would be distributed using each method:
The testator A dies, leaving the estate in equal shares to the 3 children, B, C and D. If all 3 children survive the testator, it won't matter if it's per stirpes or per capita--they each will receive a 1/3 share.
But in the illustration above, two of the children, B and D, predecease the testator. With per stirpes, surviving child C still gets a 1/3 share, but the shares that would have passed to B and D descend the "branches" to be divided by their respective children. Thus, B1 and B2 split B's share and each receive 1/6 of the estate, while D1 being an only child receives D's full 1/3 share.
In the case of per capita, C still receives a 1/3 share. But the remaining 2/3 of the estate is divided equally among all three of the grandchildren, yielding a 2/9 share for each. With per capita, D1 receives a smaller share than by per stirpes, and B1 and B2 each receive larger shares than by per stirpes.
Note: There is a potential tax complication that may arise if you leave direct shares to grandchildren and great-grandchildren using the per capita method and you still have children who survive you. This may result in the federal generation-skipping transfer tax (GSTT) on the shares distributed to your grandchildren and great-grandchildren.
An experienced estate planning attorney can help you create a strategy that helps preserve your assets for your loved ones.