Introduction: Texas Estate Planning
We prepare quite a few estate plans, Wills, and trusts for our clients. One question that we get from time to time when discussing how to allocate inheritance to generations after the first is: “what’s the most fair way to distribute?” This being Texas, it won’t surprise you to know that there are many, many diverse opinions on how to divide one’s estate, and with a bit of clever planning, we can accomplish almost any goal. There are two common ways to designate the distribution of assets through a Will or trust, which we estate planning lawyers have cleverly used latin names for, so that you know we’re fancy – per capita and per stirpes. These mean, roughly, “by head” and “by branch,” respectively. Before we get into a detailed explanation, let’s take a quick pit-stop and cover some vocabulary that is important to understand when discussing estate planning:- Heir – a person that is entitled to another person’s property upon their death, whether by reason of Will, Trust, or the law of intestate succession
- Testator – person who has made a Will
- Trust – a component of many estate plans, a Trust is in some ways an alternative to a Will in the context of estate planning, although it can also be used for asset protection and many other things
- Will – shorthand for a Last Will and Testament; this is a document prepared during a person’s lifetime and directs the disposition of assets at their death (as well as other things)
Per Capita (Scenario 1)
The best way to begin to understand the differences between per capita and per stirpes is through a few examples. Here is the first example:T writes a valid Will during his lifetime.
T has two children, A & B. Child A has one child, Grandchild A1. Child B has two children, Grandchildren B1 & B2. Further, A1 has three children of his own – Great-Grandchildren G1, G2, and G3.
T names A, B, B1, and B2 as his heirs under his Will, with shares per capita, but does not name A1, G1, G2, or G3 in his Will.
In this example, T is the Testator because he or she is the one writing the Will. A, B, B1, and B2 are heirs because they are named in the Will. A1 is not an heir because he/she is not named in the will. G1, G2, and G3 are also not heirs, for the same reason. As mentioned above, per capita means “by the head.” To distribute assets per capita means that the assets are distributed evenly among all heirs – each heir or “head” gets an equal amount, regardless of whether that heir is a child, grandchild, spouse, best friend, or anything else. Continuing with the above example, in the case of per capita distribution under this Will, each person that T named an heir would receive an even amount of the assets. So, Child A, Child B, Grandchild B1, and Grandchild B2 would each receive 25% of T’s estate, while Grandchild A1, and Great-Grandchildren G1, G2, G3 would receive nothing (they are not named in the Testator’s Will, and the death of an Heir does not change that, unless the Will specifies otherwise). Suppose now that Child B dies (or suppose the death of any other heir), the assets would be distributed among the remaining three heirs at approximately 33% each. Again, A1, G1, G2, and G3 get nothing because they are not heirs.Per Capita (Scenario 2)
Let’s change the example above very slightly:T writes a valid Will during his lifetime.
As before: T has two children, A & B. Child A has one child, A1. Child B has two children, B1 & B2. Further, Child A1 has three children of his own – G1, G2, and G3.
However, this time the following things are different: T names all of the above-named descendants in his Will, to share per capita. T does not exclude anyone from his Will like he did before.
In this example, T is still the Testator because he or she is the one writing the Will. A, B, B1, and B2 are still heirs. However, this time A1, G1, G2, and G3 are heirs as well. In this case, upon T’s death, each of A, B, B1, B2, A1, G1, G2, and G3 would evenly share in the assets – receiving 1/8th share (or 12.5%) each. Suppose that Child A pre-deceases T under this Will with per capita distribution rules. In this case, each of B, B1, B2, A1, G1, G2, and G3 would receive 1/7th (or approximately 14.3%) each.Question: What would happen if, instead, all three of G1, G2, and G3 pre-deceased T?
Answer: A, B, B1, B2, and A1 would receive 1/5th (20%) each.
Again, the bottom line with per capita is that it does not matter where an heir sits in the family tree with relation to the Testator. All heirs get an equal share per head. The math is simple. All shares are equal. But there is another way of distributing estate assets that can also be considered fair – that alternative method of dividing shares is called per stirpes.Per Stirpes
Let’s continue with the previous example, with one small change:T writes a valid Will during his lifetime.
As before: T has two children, A & B. Child A has one child, A1. Child B has two children, B1 & B2. Further, A1 has three children of his own – G1, G2, and G3. T names all of the above-named descendants in his Will. T does not exclude anyone from his Will.
However, this time the following thing is different: T specifies that the beneficiaries are to share per stirpes.
In this example, T remains the Testator because he or she is the one writing the Will. A, B, B1, B2, A1, G1, G2, and G3 all remain heirs as well. Their shares, however, will be determined per stirpes rather than per capita. As mentioned above, per stirpes means “by the branch.” In order to understand per stirpes, it may help to visualize or sketch out a family tree. If all of the heirs are alive at the time of T’s death, and T has designated a per stirpes distribution to his heirs, Child A and Child B would each receive 50% of T’s estate because they are living immediate children. Each of A1, B1, B2, G1, G2, and G3 would receive nothing, as their shares are included in the 50% that A and B have each received. To illustrate how per stirpes works, let’s suppose that some of the heirs have pre-deceased T.Question: If Child B was already dead at the time of T’s death, who are the heirs and what shares do they inherit?
Answer: Child A receives the same 50% from the previous example. Child B’s children, B1 & B2, would get 25% each – this represents one-half of their parent B’s share (you can calculate their share as 50% of 50%).
In a per capita distribution, (assuming for a moment that G1, G2, and G3 are not heirs) each of A, B1, and B2 would receive 33.3%, rather than the 50%/25%/25%. Hopefully from this example, you can see how the different methods of distribution matter, as well as see that a family tree can be extremely helpful. Let’s try another example.Question: Suppose, instead, that both A and B were dead at the time of T’s death. What shares do the living heirs inherit?
Answer: In this case, B1 and B2 get 25% each, representing one-half of their parent B’s 50%. However, A1 steps into the shoes of his parent A, and receives A’s full 50%.
This is again notably different from a per capita distribution in which (assuming for a moment that G1, G2, and G3 are not heirs) each of A1, B1, and B2 would receive 33.3%. It is also, interestingly, identical to the shares in the example immediately before, because A1 was the only heir of A. Let’s run through one more example.Question: Suppose that A and A1 are both dead at the time of T’s death, but all other heirs are alive. What shares do the living heirs inherit?
Answer: In this case, G1, G2, and G3 will evenly split A’s (A1’s) 50% share, receiving 16.6% each. B receives 50%.
If this has all made your head spin, the following visuals may be helpful for understanding the difference between per capita and per stirpes:[charts to come]
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