Estate Planning

What Do Stripes Have to Do with My Estate Plan?

A common question clients pose when drafting an Estate Plan is, “What exactly does per stirpes mean?”.  When property is distributed via a Will or Trust, it’s necessary to consider how to divvy up the distribution, in other words, who gets what?  Maryland provides two ways to administer a distribution amongst a group of beneficiaries, per stirpes and per capita.  The default preference in Maryland is per stirpes, but one should always provide for a specific type of distribution when drafting an Estate Plan.

The simplest way to define the terms is by illustration, but broadly, a per capita distribution passes equally to all beneficiaries who take at the time of the gift, whereas a per stirpes distribution may result in different sized gifts by allowing certain beneficiaries to “step into the shoes” of another.

Consider this scenario:  Testator (the person drafting the will) has two children, A and B.  A has two children and B has four children.  Testator’s Will provides for a gift of $100,000 to pass to A and B in equal shares, and if A or B predecease the Testator, to their children.

If A and B are both alive at the time of Testator’s death, then both will receive $50,000 whether the distribution is per capita or per stirpes, full stop.  If either A and/or B die before the Testator, then whether the distribution is per stirpes or per capita will be determinative.  Let’s quickly run through three variations to this scenario under both methods of distribution.

Per Capita Distribution ­– (1) If A predeceases the Testator, then A’s two children and B will each take $33,333 – A’s children take 2/3 of the total gift.  (2) If B predeceases the Testator, then A, and each of B’s four children, will each take $20,000 – B’s children take 4/5 of the total gift.  (3) If both A and B predecease the Testator, then A’s two children and B’s four children will each take $16,666 (1/3 of the total gift to A’s children, 2/3 to B’s).

As you can see the three possible outcomes are driven largely by who dies first and how many children they had, which could serve to frustrate the Testator’s intent, especially if you tease this hypothetical out to the extreme.  I’d argue that scenario (3) is most equitable outcome as A’s children “win” in scenario (1) and B’s children “win” in scenario (2), though one can certainly imagine a scenario where such unequal distributions would be appropriate.

Per Stirpes Distribution –  If A or B predeceases the Testator, then A or B’s children will step into A or B’s shoes.  Consider: (1) If A predeceases Testator, then A’s children will split A’s $50,000, $25,000 each, and B will take $50,000. (2) If B predeceases Testator, then A will take $50,000 and B’s children will split B’s $50,000 share, $12,500 each.  (3) if A and B predecease Testator, then A’s children will take $25,000 each (1/2 of A’s $50,000), and B’s children will take $12,500 (1/4 of B’s $50,000).

When a distribution is carried out per stirpes you’ll generally end up with a more predictable result.  However, depending on Testator’s intent, per capita scenario 3 is arguably most equitable.  As you can see there are many things to consider when deciding between per stirpes and per capita distributions, especially predictability and equitability, but there seems to be some wisdom in maintaining per stirpes as the default standard.

*This post does not contain legal advice and should not be considered as such*

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