The notion of fairness often pervades family dynamics and may continue even beyond death when decisions about dividing accounts and property arise. The law has attempted to address different notions of fairness with a variety of distribution strategies. Per stirpes, by representation, and per capita are key terms in estate planning that specify how money and property are distributed. As you explore these distribution methods, observe how they achieve fairness in different ways with different results.
To best understand how these distributions work, we need to start with the basics. When a parent dies and the deceased parent’s accounts and property are divided amongst their children, the children split everything equally. This is the most basic inheritance distribution principle. Sometimes, however, grown children predecease their parents and leave behind children of their own. Per stirpes, by representation, and per capita distribution are best understood in such contexts where grandchildren are relevant parties due to the death of a child.
Per Stirpes Distribution
The term Per Stirpes is term for “by roots” or “by branch.” In the context of a predeceased beneficiary, per stirpes distribution means that whatever would have originally passed to a beneficiary before their death will now be distributed to that individual’s descendants. Consider the following example: Arthur has two children, Becky and Carl. Becky has four children of her own, and Carl has one child.
If Becky and Carl survive Arthur, they each receive half of his estate. However, if Becky predeceases Arthur, her share will pass to her children. Under per stirpes distribution, Becky’s four children will divide their mother’s half of the estate equally. This means that each of Arthur’s grandchildren who are descendants of Becky will receive 1/8 of the estate, while Arthur’s son, Carl, will receive 1/2 of his share. To obtain this outcome, a trust might even include language such as “My trustee shall distribute my trust property per stirpes to my then living descendants.”
However if both Carl and Becky predecease Arthur, the grandchildren would be entitled to different fractions of the estate. Carl’s son would inherit Carl’s entire share (1/2 of the estate), while Becky’s children would each inherit 1/8. The result is a disproportionate distribution of Arthur’s estate among his grandchildren.
By Representation Distribution
When a will or trust distributes estates property by representation, we focus on the first generation of living descendants to divide the accounts and property. This method is used to ensure that each person at that level is represented. As a result, some grandchildren may not receive a portion of the inheritance because their parents are alive to inherit the total share.
In the diagram above, two of Arthur’s children, Becky and Doug, predeceased him and Carl is his only living child. Since Carl is alive, Carl’s children will not inherit any portion of Arthur’s estate. Like a per stirpes distribution, Becky’s three children and Doug’s one child will split their parent’s share of the estate. Doug has one child who will receive 1/3 of Arthur’s estate, while Becky’s three children will split her share equally, and thus each receive 1/9 of the estate. However, the defining difference between these two distribution methods is clearly illustrated when all of Arthur’s children predecease him.
As can be seen in the diagram above, all of Arthur’s children predeceased him and now his estate will be split between his grandchildren. Under by representation distribution, Arthur’s accounts and property would then be distributed equally among the grandchildren rather than based on what their parents were set to inherit. Essentially, there is an equal redistribution among the second generation. Unlike per stirpes which tries to provide fair distributions to each of Arthur’s children and their descendants, by representation distribution provides equal shares to all individuals at the second generation.
Per Capita at Each Generation Distribution
The Latin term Per Capita translates to “by headcount” and clearly illustrates how it functions in regard to estate distribution. Clarifying language can be added to further tailor how the money and property are to be distributed. If a trust says “My Trustee shall distribute my trust property per capita at each generation to my then living descendants,” then the individuals in the same generation receive equal shares.
In the same scenario as provided in the “By Representation Distribution” section, Arthur had three children. Two of his children, Becky and Doug, predeceased him, but Carl is still living. Carl will still receive his 1/3 share, however Becky and Doug’s children will equally split the remaining share. Becky’s three children and Doug’s son will each receive 1/4 of Becky and Doug’s combined shares of the estate. In this case, these four grandchildren of Arthur will each receive 1/6 of his estate. This method of distribution is clearly illustrated in the diagram provided above.
Conclusion
Each distribution strategy attempts to achieve some form of fairness, but the determination of fairness is entirely subjective. As you plan for your family, reach out to our law firm. Our team is dedicated to helping you craft a customized plan that you will feel confident about. We are available for virtual consultations.
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Nielsen Law PLLC provides family focused estate planning to individuals and families in Austin, Round Rock, Cedar Park, and the Central Texas area. For more information and to learn about our firm, please contact us.
