Understanding Per Stirpes: A Guide with Examples
Estate planning is a critical process that ensures your assets are distributed according to your wishes after you pass away. One important concept in estate planning is “per stirpes.” This legal term, derived from Latin, means “by branch” and plays a significant role in how your estate may be divided among your heirs.
This article will explain the concept of per stirpes, provide examples to illustrate its application, and discuss how and where per stirpes can be included in your estate planning documents. Additionally, we will explore the implications of minors inheriting under a per stirpes distribution.
What is Per Stirpes?
Per stirpes is a method of distributing an estate where each branch of a family receives an equal share. If a designated beneficiary predeceases the testator (the person who made the will), that beneficiary’s share will pass down to their descendants. This approach ensures that the descendants of a deceased beneficiary inherit their parent’s share, thus maintaining the distribution within the family line.
Example of Per Stirpes Distribution
Suppose John has three children: Alice, Bob, and Carol. John’s will specifies that his estate should be divided per stirpes among his children. If all three children are alive when John passes away, each child will receive one-third of the estate.
However, if Bob predeceases John and Bob has two children, under a per stirpes distribution, Bob’s one-third share will be divided equally between his two children. Alice and Carol will still receive their one-third shares, while Bob’s children will each inherit one-sixth of the estate (half of Bob’s share).
Bob is Alive at John's Death
Bob is Deceased at John's Death
Where Can Per Stirpes Be Added?
Per stirpes distribution can be incorporated into various estate planning documents, including:
Wills: In a will, you can specify that your estate should be distributed per stirpes among your descendants. This ensures that your assets remain within your family line, even if a beneficiary predeceases you.
Trusts: Trusts can also include per stirpes language. If a trust is established for the benefit of your children, for example, you can stipulate that the trust’s assets be distributed per stirpes if one of your children predeceases you.
Beneficiary Designations: Certain financial accounts and life insurance policies allow you to name beneficiaries. In these cases, you can include per stirpes language to ensure that your designated beneficiaries’ shares pass to their descendants if they predecease you.
What Happens If Minors Inherit Under Per Stirpes?
When minors inherit under a per stirpes distribution, special considerations must be made to manage their inheritance responsibly until they reach the age of majority. Here’s what typically happens:
1. Guardianship:
If a minor inherits under a per stirpes arrangement, a guardian may be appointed by the court to manage the minor’s inheritance. This guardian is responsible for overseeing the assets and making financial decisions on behalf of the minor until they are legally able to manage the inheritance themselves.
2. Trusts for Minors:
To avoid the complexities of guardianship, many estate planners opt to establish a trust for minor beneficiaries. In this case, the inheritance is held in trust until the minor reaches a specified age, often 18, 21, or 25 years old. The trustee, appointed by the testator, will manage the assets according to the trust’s terms and may use the funds for the minor’s benefit, such as paying for education, healthcare, or other needs.
3. Uniform Transfers to Minors Act (UTMA):
In some jurisdictions, the Uniform Transfers to Minors Act (UTMA) allows assets to be transferred to a custodial account for the benefit of a minor. The custodian manages the account until the minor reaches the age of majority, at which point the assets are transferred to the beneficiary.
Conclusion
Per stirpes is an essential concept in estate planning that ensures your estate is distributed equitably among your descendants, even if one of your beneficiaries predeceases you. Understanding how per stirpes works, where it can be applied, and the implications of minors inheriting under this arrangement is crucial for crafting a comprehensive estate plan. Whether you’re drafting a will, creating a trust, or designating beneficiaries for your financial accounts, considering per stirpes can help ensure that your wishes are honored and your loved ones are provided for according to your intentions.