Per Stirpes vs. Per Capita Beneficiary Designations

Estate planning and retirement planning can be stressful undertakings, especially with the many legal and financial terms you are expected to know. It’s important to understand the details of beneficiary designation terms because even small differences can have a great effect on how money is managed and distributed. 

If you have assets that accept a beneficiary designation, such as a 401(k), annuities, life insurance policies, or IRAs, then you must denote how these assets will be distributed to beneficiaries. You can list multiple primary beneficiaries and also contingent beneficiaries. Primary beneficiaries are always first in line if they are living. Contingent beneficiaries are always second in line behind any and all primary beneficiaries.

Let’s say you have multiple primary beneficiaries or multiple contingent beneficiaries. Did you know there is also a way to further specify how to split up assets within each of these major beneficiary tiers using the Latin terms Per Stirpes and Per Capita?

These designations determine how the asset will be distributed if you have multiple beneficiaries in the same beneficiary tier (primary or contingent) and one of your beneficiaries passes before you do.  In this article, we’ll focus on per stirpes vs per capita as it applies to life insurance.

What Does Per Stirpes Mean As A Beneficiary Designation?

With a per stirpes designation, the shares of any predeceased beneficiary will be passed down evenly to that beneficiary’s heirs. 

NOTE: People will often name a spouse as a primary beneficiary and children as equal contingent beneficiaries with a per stirpes designation.

Let’s return to Dan, Susan, and Jeff for another example. If the life insurance policy stipulates that the death benefit should be distributed evenly per stirpes, each beneficiary will receive a set share. Now, suppose once again Dan passes before the insured. Instead of reallocating his benefit portion to Susan and Jeff, Dan’s portion will be passed on to his heirs upon the death of the insured.

The main advantage of the per stirpes designation is that should a beneficiary pass before the insured (or the grantor in estate planning arrangements), the deceased beneficiary can still leave money to their heirs. In the case of life insurance, having a per stirpes arrangement could make all the difference in providing for those who rely on you financially. 

If you have two children listed on your policy, the money will go to both of them evenly. But, should one of them pass away before you, then their children (your grandchildren) would inherit their parent’s share of the insurance money. This way, those grandchildren are still financially protected.

What Does Per Capita Mean As A Beneficiary Designation?

With a per capita, also referred to as pro rata, designation, each beneficiary will receive equal shares of the distribution. Beneficiaries are often your spouse, your children, all of your living descendants, or whoever is specified in the life insurance policy. With a per capita designation, the share of any predeceased beneficiary would be reallocated equally to the other remaining beneficiaries. 

For example, Dan, Susan, and Jeff are named as equal beneficiaries on a life insurance policy. When the insured dies, the policy’s death benefit will be distributed among them. However, if Dan were to pass away before the insured, the death benefit would be distributed to Susan and Jeff only. Carrying this example one step further, let’s suppose two of the named beneficiaries pass before the insured. Under a per capita designation, the deceased beneficiaries, regardless of any heirs they may leave behind, are no longer legal beneficiaries so the benefit would be distributed to the one surviving beneficiary.

What Are The Differences Between Per Stirpes vs. Per Capita?

Ultimately, these designations determine whether the assets or death benefits are divided among listed beneficiaries (per capita), or passed down to heirs (per stirpes) should one of the listed beneficiaries pass away before the grantor.

Another way you can distinguish between per capita and per stirpes is by looking at the Latin meaning behind the words. 

  • In Latin, per capita means “by the head.” Think of the beneficiaries as individuals.  If one beneficiary dies, the remaining beneficiary(s) will each receive a larger portion of the assets. 
  • Per stirpes means  “by branch” or “by roots.” Think of a family tree by which things are passed along to other branches. In this case, benefits are passed from family branch to branch (or to the following generation).

If you want a set amount of shares to go to each beneficiary and their heirs, you will want a per stirpes designation. However, let’s say you don’t have any kids and simply want your assets to be divided among siblings or different organizations. In this case, the per capita designation would be suitable.

The Bottom Line

The designation you select should be based on your preferences, the people in your life, and how you’d like your money to be distributed among family, friends, organizations, etc.  It’s important to properly designate your life insurance beneficiaries to ensure your legacy is passed on the way you wish.  Consider who you are financially responsible for, specific people, charities, organizations, and institutions, then select the designation that will best fulfill your responsibilities, needs, and wants.

If you need help making beneficiary adjustments or setting things up for the first time, schedule a strategy session with one of the McFie Insuranceteam. 


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