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Should you choose 'per stirpes' or 'per capita' distributions?

When you begin working with your attorney on your estate plan, you'll be hearing a lot of terms that you're probably unfamiliar with. It's crucial to understand what they mean.

One of these terms is "per stirpes." Another is "per capita." Both are used to describe how assets are bequeathed to heirs and other beneficiaries in wills and living trusts.

Per stirpes

This means "by class" or "by representation." In estate planning, it refers to a class of beneficiaries. If assets are distributed per stirpes, each beneficiary in a class will get an equal share. If one member of the class is deceased, the descendants of the deceased person will receive that person's share of the assets "by representation."

For example, say that you designate in your will or trust that your assets should go to your children per stirpes. If you have two children, they would receive an equal share. However, if one of your children predeceases you, their share would then be divided equally between or among their children. Your other child would still receive their half.

By choosing to distribute your property per stirpes, you don't have to revise your will every time one of your descendants passes away unless you wish to change the pattern of distribution you originally designated.

Per capita

This is a term that most people are familiar with in other contexts. It means essentially "by total headcount." As with a per stirpes distribution, every living member of a group you've identified, such as your children, would receive an equal share of your property. However, if one of them predeceases you, the property is then divided between or among those who are still living rather than that person's share going to their children.

Most people prefer the per stirpes option over per capita because it better addresses most people's family situation, where children inherit money from their parents, and their children, in turn, inherit from them.

Further, if you choose the per capita method, including both children and grandchildren, and one of your children dies, a generation-skipping transfer tax is triggered for their children.

Your North Carolina estate planning attorney can craft your estate planning documents to minimize complications and unnecessary taxes and other expenses for your loved ones and other beneficiaries after you're gone.

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