Definition
Per Stirpes is a legal term in finance that refers to the method of dividing an estate where an individual’s share is passed on to their descendants if they are deceased. Rather than being received directly, the portion is distributed equally among their children. This ensures that the assets stay within the larger family lineage even if an immediate beneficiary has passed away.
Key Takeaways
- Per Stirpes is a legal term used in inheritance law that translates to “by branch” in Latin, which denotes the distribution of an estate when a beneficiary predeceases the decedent.
- With Per Stirpes, if an inheritor predeceases the testator (the person who made the will), the inheritor’s share will be divided equally among his or her own heirs, regardless of how many other beneficiaries or different generations are alive.
- Per Stirpes is specifically impactful in larger families, where premature deaths could significantly impact the distribution of assets among the remaining beneficiaries and later generations.
Importance
The finance term “per stirpes” is particularly crucial in wills and estate planning as it helps ensure that an individual’s assets are distributed precisely the way they intend after they pass away.
It refers to a method of distributing an estate so that descendants of a deceased beneficiary can inherit their proportion of the estate.
This is useful in instances where a beneficiary may predecease the testator, ensuring their portion of the inheritance isn’t arbitrarily distributed among the other surviving beneficiaries, but instead goes to their immediate descendants.
Therefore, the term “per stirpes” plays a vital role in upholding the deceased’s estate plan and maintaining fairness in the asset distribution process among their heirs.
Explanation
Per Stirpes is a legal term primarily used in estate planning to dictate how assets will be distributed to a decedent’s descendants. This term plays a vital role in wills and trusts and acts as a guiding principle intended to protect the interests of all beneficiaries, irrespective of their degree of relation to the deceased.
Simply put, its main purpose is to ensure a fair and equitable transfer of wealth upon death to different generations of beneficiaries. The Per Stirpes method aims to maintain the proportion of inherited wealth within a family, regardless of changes due to death or birth of beneficiaries.
If a beneficiary predeceases the decedent, their share is passed on to their descendants proportionally, ensuring the deceased beneficiary’s branch of the family is not disinherited. This process promotes continuity of inheritance and supports generational wealth transfer.
For example, in a will where assets are intended to be split equally among children, if one child predeceases the parent, their share will be split equally among their children (the decedent’s grandchildren), thereby preserving the original intent of the will.
Examples of Per Stirpes
Inheritance: Assume that a wealthy individual with three children passes away, and in their will, they specify that their assets should be distributed ‘per stirpes’. The first child has one child of their own, the second has two children, and the third is deceased but has three children. Following the per stirpes rule, each of the living children would receive a third of the estate, and the third of the deceased child would be split equally among their three children.
Insurance Payouts: Consider a life insurance policy where the beneficiaries are listed per stirpes. If the policyholder has two children, both listed as beneficiaries, and one of the children predeceases the policyholder but has two children (the policyholder’s grandchildren) of their own, the life insurance payout would split such that half would go to the surviving child and half would be split between the two grandchildren.
Retirement Accounts: For example, consider a man with a retirement account, who named his two children as beneficiaries per stirpes. If he outlived one of his children, then the retirement funds would be automatically divided among his surviving child and the deceased child’s children (his grandchildren). The surviving child would receive 50% of the remaining funds, and the rest would be equally split among the deceased child’s children.
Frequently Asked Questions About Per Stirpes
What Does “Per Stirpes” Mean?
“Per Stirpes” is a term used in estate law that means “by branch”. In the context of inheritance, it means that if a beneficiary predeceases the person leaving the inheritance, then the beneficiary’s descendants will receive their inheritance.
When is “Per Stirpes” Useful?
“Per Stirpes” is especially useful in planning estates when there are complex family structures. It ensures that an inheritance passes to the decedent’s grandchildren and not just their surviving children.
What’s the Difference Between “Per Capita” and “Per Stirpes” Distribution?
In a “Per Capita” distribution, all living descendants of the same generation share equally in the inheritance. In “Per Stirpes”, however, if a beneficiary dies before the inheritance is received, their share will pass to their children and not to the other beneficiaries.
How is “Per Stirpes” Used in the Will?
The term “Per Stirpes” can be used in a will to specify how assets are distributed after the testator’s death. It’s important to make sure that this term is used correctly to ensure that assets aren’t accidentally distributed in a way that the testator didn’t intend.
Does a Will have to Include the Term “Per Stirpes”?
No, a will does not have to include the term “Per Stirpes”. However, using this term may clarify and simplify distribution of the estate upon the decedent’s death.
Related Entrepreneurship Terms
- Beneficiary: The individual or entity who will benefit from a deceased person’s estate or a trust.
- Estate Planning: The process of arranging and planning for the future disposal of one’s estate, typically involving a will, trust, or the designation of beneficiaries.
- Will: A legal document which expresses a person’s wishes as to how their property is to be distributed after their death.
- Succession: The process by which one’s assets and estate are transferred to their heirs or beneficiaries after their death.
- Probate: A legal process through which a will is reviewed to determine whether it is valid and authentic, and the assets therein are distributed accordingly.
Sources for More Information
- Investopedia: A broad finance resource offering a wide range of articles, definitions, and insight into financial concepts.
- Fidelity: A large multinational financial services corporation which provides a variety of materials to understand financial terms.
- NerdWallet: A personal finance website that provides advice for making financial decisions and explanations of financial terms.
- Merrill Edge: An online brokerage extending Bank of America’s financial services, it provides financial insights and definitions.
