Estate planning can be simple if you've got a small family with only one child and no siblings. It's when you have a large family, such as a blended family, that it can get complicated. That's why you need a trust attorney in Orange County to help you create a will that encapsulates your wishes, especially regarding asset distribution among your beneficiaries.
They'll be able to tell you which type of distribution, per stirpes or per capita, matches your needs.
Per stirpes is a Latin term that means "by branch" or "by roots". It's a linear asset distribution method. It means that if one of your descendants passes away before you do, their share of your estate goes to their children. It's a direct line from you to your children to your grandchildren.
However, it doesn't make provisions for your spouse or other loved ones. It also only applies to your biological children. Unless you create a trust for your stepchildren, they are completely left out of your will.
You have two children, Alice and Betty. Alice has two children and Betty has three children. According to your will, they share your estate equally, 50-50. Alice dies in a tragic accident and, according to per stirpes, her share goes to her children. Each child receives a quarter of your estate and Betty still has her 50% share.
You still have Alice and Betty and they still have their children. This time Betty dies from a major heart attack and, according to per stirpes, her share goes to her children. Each child receives approximately 16% of your estate assets and Alice still has her 50% share.
Per stirpes has many benefits, but one glaring problem is the "unfair" estate distribution among your grandchildren. Alice's children get 25% of your estate while Betty's children only get 16%.
There is absolutely no favoritism on your part. There is no spite, no desire to cheat Betty's children. But, it could appear so and suddenly where there was none, there is now enmity between your grandchildren.
Per stirpes is not a default asset distribution method. You have to specify it in your will. You also have to use specific terms. "Assets are to be distributed to my descendants, per stirpes."
Per capita shares your assets equally among your named beneficiaries, including sisters-in-law, uncles, half-brothers, etc. Should a primary beneficiary pass away before you, their share is added to the pot and then equally distributed among your living beneficiaries.
Your probate attorney in Orange County will help make your wishes clear by using specific terms in your will, "I leave my estate to my descendants, per capita."
You still have Alice and Betty and they still have their children. Alice falls from a tree and dies from her injuries. Her share of the estate goes to Betty. Betty now receives 100% of the estate. Alice's children don't get anything.
You have three children, Alice, Betty, and Carol and your estate is to be shared equally between them, so each gets a one-third share. Alice has two children, Betty has three children, and Carol has one child. Alice dies from a terminal disease and her share of the estate is then divided between Betty and Carol. Now they both get 50% of your estate.
Alice's children don't get anything.
Many people consider per capita distribution to be the fairer of the two methods, but it also has disadvantages.
One of the biggest advantages of per stirpes is that the line of distribution has been established. You don't need to update your will or estate plan when an original beneficiary passes away.
It also eliminates uncertainty and potential squabbles about how a deceased beneficiary's share is to be distributed if they die before you, the testator. You can further secure assets for your beneficiaries by including a no-contest clause in your will.
You can't add a new beneficiary (contingent beneficiary) if one of your children or grandchildren dies. Inheritance is strictly linear.
All beneficiaries receive an equal share in your estate, regardless of your relationship, for example, spouse, niece, or cousin.
In theory, it also eliminates squabbles because distribution is clearly stated.
If the value of your estate is worth more than a set amount and you decide to leave it to your grandchildren rather than your children, they will have to pay generation-skipping transfer tax (GSTT).
You can't give your favorite niece a bigger share of the estate than your least favorite niece. Per capita distributes assets equally, regardless of your preferences.
You have to update your will whenever there are significant life events, like a death, divorce, marriage, or birth.
There is a very clear difference between the two types of asset distribution and they each serve a specific purpose. However, they also each have little details and state-specific regulations that are best explained by an experienced estate planning lawyer. Parker Law Offices employs some of the best Orange County estate planning attorneys who specialize in estate planning, including trusts and probate.
If you have any questions about estate planning or want to start the estate planning process, get in touch via email, our onsite contact form, or by calling 949-867-4818.