Per stirpes distributions in estate planning
R Jonathan Raymon is vice president and trust specialist with Hilliard Lyons Trust Company LLC. He is a member of the Estate Planning and Elder Law Program's advisory board.
Here, he shares insights on a common problem encountered in estate planning.
A common problem when devising an estate plan is creating a distribution which treats all children and grandchildren fairly.
If all of a decedent’s children are alive at the time of distribution, the solution is usually fairly straightforward and all the children can receive shares equally, or “per capita.”
However, if one of the decedent’s children is deceased and has children of his or her own (i.e., grandchildren of the decedent) then the distribution is a bit murkier. If a grandchild were to receive a per capita share of the estate, the grandchild would not only receive the same dollar value as a living child, but the possibility of multiple grandchildren could erode the share that a child would have otherwise received. Alternatively, if the estate is divided only among the living children, then some grandchildren might be completely left out of the good fortune of the estate.
The frequent solution is often referred to in shorthand by the Latin phrase “per stirpes,” meaning “by branch.”
In a per stirpes distribution, the value of the estate is divided into shares for each child who is either alive at the time of distribution or is survived by descendants. The share that would have gone to the deceased child would then be split in a similar fashion for any of his or her children.
For example, if a decedent had three children, but one of whom is already deceased leaving two of his own children, then the two surviving children would each receive one-third of the estate and the children of the deceased child (i.e., grandchildren of the decedent) would each receive one-sixth of the total estate. Although the grandchildren whose parents are still alive would not directly receive anything at the distribution of the estate, one would expect that they would benefit indirectly through their parents.
Because it is never possible to know who will survive a decedent at his or her death, a per stirpes distribution offers a simple approach to guarantee that each “branch” of a family is treated equally. This can be particularly helpful in beneficiary designation forms for IRA and other transfer-on-death (TOD) accounts, which may otherwise appear very limiting in allowing for contingent distributions.
Each state has statutes which further define how a per stirpes distribution occurs if the will or trust is silent; for example, a statute will describe how adopted or step-children are treated. Nevertheless, historically the term per stirpes has been used for centuries and is an established method to describe the distribution of an estate.