What does it mean to give a gift in a will per stirpes? What does it mean to give per capita? How about per capita by generation?
Sorting out what is meant by a distribution made per capita, per stirpes, and per capita by generation may at first seem like you need to be fluent in Latin or hold an advanced mathematics degree to understand. Fortunately, the differences between these distribution methods are easily illustrated.
In this article, we’ll define per capita, per stirpes, and per capita by generation and examine how distributions would be made under different scenarios.
What is a per capita distribution?
A per capita distribution is a simple distribution that gives an equal share to each surviving member of a class. Distributions are limited to the class itself and do not extend to subsequent generations.
What is a per stirpes distribution?
In a per stirpes distribution, which means “by branch”, property is divided into as many equal shares as there are (i) surviving children of the designated ancestor and (ii) deceased children who left surviving descendants. Each surviving child, if any, is allocated one share. The share of each deceased child with surviving descendants is divided in the same manner, with subdivision repeating at each succeeding generation until the property is fully allocated among surviving descendants.
What is a per capita by generation distribution?
In a per capita by generation distribution, which is sometimes also called a distribution “by representation” or “per capita at each generation,” property is divided into as many equal shares as there are (i) surviving descendants in the generation nearest to the designated ancestor which contains one or more surviving descendants (ii) and deceased descendants in the same generation who left surviving descendants, if any. Each surviving descendant in the nearest generation is allocated one share. The remaining shares, if any, are combined and then divided in the same manner among the surviving descendants of the deceased descendants as if the surviving descendants who were allocated a share and their surviving descendants had predeceased the distribution date.
Visualizing the impact of different forms of distribution
Depending on which beneficiaries survive the deceased ancestor, the share that a person may receive under different systems could be the same or different. To help illustrate this point, we'll consider the hypothetical gifting scenarios of a fictitious person, Jill, to her three sons -- Joe, Jack, and Jake -- under the per capita, per stirpes, and per capita by generation methods.
In the first scenario, all members of the inheriting class survive. Per capita, per stirpes, and per capita by generation distributions all have the same result. Each of the surviving sons inherits a 1/3 share.
In the second scenario, one member of the inheriting class, Joe, predeceases Jill. The per capita distribution will result in other members of the surviving class, Jill's other two sons Jack and Jake, receiving Joe's share. Per stirpes and per capita by generation distributions, however, will first seek to pass that deceased member’s share to the deceased member’s children.
Under the per capita distribution method, Jack's share is split between the two surviving sons.
Under the per stirpes and per capita by generation distribution methods, Jack's share is split between his surviving children, Sarah and Sam.
So long as only one inheriting class member predeceases the ancestor, per stirpes and per capita by generation distributions will have the same result. But what happens if more than one inheriting class member predeceases the ancestor?
Situations in which more than one member of a class predeceases the ancestor are where per stirpes and per capita by generation distributions are likely to diverge. Per stirpes distributions pass the share of each predeceased class member to that member’s surviving children. Per capita by generation distributions, on the other hand, pool the shares of all predeceased class members and re-distributes on a per capita basis to those children of the predeceased class members who survive.
Under the per capita distribution method, Joe, as the last surviving member of the class, inherits the entire gift.
Under the per stirpes distribution method, Jack's children, Sarah and Sam, split Jack's share. Jake's child, Sage, inherits Jake's share. The result is uneven distribution among Jill's grandchildren.
In the per capita by generation distribution method, Jack's and Jake's share is pooled together and distributed among the next-nearest generation equally. This results in all the surviving grandchildren who are children to either Jack or Jake receiving equal shares.
Which distribution method should you choose in your will?
While there is no inherently right or wrong distribution method for a gift under your estate plan and you could even mix and match different distribution methods for different gifts, a survey of client preferences conducted by Fellows of the American College of Trust and Estate Counsel suggests that the per capita by generation system is overwhelmingly preferred by most clients. People tend to think that the fairest distribution method treats members of a particular generation as equal to all those others in the same generation. One grandchild has no greater right to inherit vs. another grandchild.