|Credit: Grant Cochrane|
Say you have a will and you wish to leave your fortune to your three sons: Alvin, Simon, and Theodore. Say Alvin, Simon, and Theodore have all grown up, and each has a son of his own. Well, if you wrote your will to state that the remainder of your estate was to be divided up equally between Alvin, Simon, and Theodore, what would happen if Alvin died before you had a chance to update your will? If you had the Latin legal phrase known as “per stirpes” included in your wishes (which means “by root or representation”), then Alvin’s son would inherit Alvin’s portion, and Simon and Theodore would inherit their portions. If you do not have per stirpes written, and instead have the phrase “per capita” included in your wishes, then Alvin’s son would get nothing, and Simon and Theodore would split your estate 50/50. Talk about a family feud! If you don’t have “per stirpes” or “per capita” included in your wishes, and Alvin died before you, I honestly couldn’t tell you how your will would pay out without carefully reading the entire document.
I’m not writing this today to scare you to death so we can see how your estate plan shakes out. I’m writing this to encourage you to dust off your latest will and make sure it actually reflects your last wishes, whether per stirpes or per capita. If you think you might inherit some money from someone who is still alive, I encourage you to figure out a way to share this post or drop some sort of hint to make sure your heirs are looked after should something happen to you before your likely grantor.
Finally, please make sure your retirement accounts (401(k)s, IRAs, deferred compensation plans, etc.) and life insurance policies’ beneficiary designations also reflect the last wishes of your will. This is imperative because retirement accounts and life insurance policies' beneficiary designations trump a will. For example, if your 401(k) beneficiary designation says Alvin, Theodore, and Simon per capita, and your will says everything to Alvin, Theodore, and Simon per stirpes, your 401(k) will actually be split per capita! Remember, that would mean your grandson (Alvin’s son) would not see a dime from your 401(k) should Alvin predecease you!
Most of the clients I work with seem to want “per stirpes” to be in place, but that is neither right nor wrong. If you want to ensure that only the people you have specifically named will be able to initially receive your assets, it’s perfectly fine to have “per capita” in place. I just want to encourage you to take a look at your will and beneficiary designations if you are not sure what you have in place because relying on the defaults could lead to your final wishes being skewed and some pretty unhappy chipmunks.