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When people think about estate planning, they often focus on wills and trusts. But one of the most important decisions about where your money goes after you die might not appear in those documents.
Beneficiary designations on retirement accounts, life insurance policies and annuities often override the instructions in your will or living trust.
Buried within those designations are two little-known terms that can dramatically change the outcome for your family: per stirpes and per capita.
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Most families have never heard of them. But understanding the difference can determine whether your grandchildren receive an inheritance or are unintentionally left out.
Beneficiary designations matter more than you think
That’s where problems often begin.
Many people assume estate planning is simple: name primary beneficiaries, add a contingent beneficiary and move on. But the bigger question is: What happens if one of your beneficiaries dies before you?
The answer depends on whether the account is set up per capita or per stirpes.
Per capita vs per stirpes, in plain English
Per capita means “by head.” If one beneficiary dies before you, that person’s share is redistributed equally among the remaining living beneficiaries.
Per stirpes means “by branch.” Instead of being redistributed, the deceased beneficiary’s share passes down to their children (your grandchildren), divided equally among them.
The difference might sound technical, but the real-world impact can be significant.
A simple example
Imagine Jane inherits an IRA after her husband, John, passes away. She names their two children, a son and a daughter, as equal 50% beneficiaries. Each child has two children of their own.
Now suppose Jane later dies, and her daughter has already passed away.
- Per stirpes: The son receives his 50%. The daughter’s 50% is split equally between her two children.
- Per capita: The son receives 100% of the IRA because he is the only surviving beneficiary. The daughter’s children receive nothing.
For families who want assets to stay within each child’s branch of the family, this distinction matters.
Don’t assume your trust will control everything
A common misconception is that a living trust determines how all assets are distributed. In reality, beneficiary designations operate separately and take precedence over your will or trust.
That means even a carefully written estate plan can be unintentionally overridden by outdated or incomplete beneficiary forms.
It also means retirement accounts don’t automatically follow your trust unless the trust is specifically named and the strategy has been coordinated with a professional.
One more complication: Custodian defaults
Another issue most people never consider is that financial institutions don’t all use the same default rules.
Some custodians default to per capita. Others allow per stirpes only if you specifically request it. In some cases, the option might not be available.
If you don’t know the default method on your accounts, you might be leaving a major family decision up to your provider.
Steps to take now
To avoid unintended outcomes, consider these actions:
- Review beneficiary designations on all retirement accounts, insurance policies and annuities
- Confirm whether each account is set up per stirpes or per capita
- Ask your custodian what the default distribution method is and whether per stirpes is available
- Make sure your beneficiary designations align with your overall estate plan
- Revisit designations after major life events such as deaths, marriages, divorces or the birth of grandchildren
The bottom line
Estate planning isn’t just about documents. In many cases, the most important decisions are made on beneficiary forms that haven’t been reviewed in years.
Understanding the difference between per stirpes and per capita is a small step that can make a lasting difference. It helps ensure your assets pass the way you intend and protects the next generation from being unintentionally overlooked.
