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What happens to your assets if your primary beneficiary dies before you?
A method of distributing assets if a primary beneficiary dies
This designation can also be used with IRAs and life insurance policies
The inheritance will pass down the family tree
If your beneficiary is dead, the assets can pass along to their children
As part of estate planning, you may have written a will or created a trust. You’ll have chosen one or more beneficiaries (or trustees) to inherit your belongings when you pass away.
But what happens if one of the heirs named in the will has also died? What will happen to your assets? Sometimes, these assets will be distributed per stirpes.
Per stirpes means “by branch” or “by root.” It is one method of distributing your assets to the down to the next generations not only through wills and trusts, but also with life insurance or retirement accounts if the beneficiaries have died.
If your beneficiary has died, with a per stirpes designation their son or daughter might receive a share of the inheritance. We’ll take an in-depth look at how per stirpes works and different types of examples.
In this article:
If you have a will in place, your beneficiaries will receive your assets and valuables when you die. When your beneficiary dies before you, his or her inheritance might be disbursed according to state law. To have more control over assets, you might want to include a per stirpes designation, which lets you stipulate what happens if a beneficiary dies.
If your beneficiary has died before you, his or her share of the testator’s (will writer’s) inheritance gets passed along to his or her next of kin. This is usually the children. Under per stirpes, assets are divided up among the next generation. Surviving spouses do not factor in to per stirpes.
Let’s say you have three children and five grandchildren. Your oldest child has no children, the second child has two, and the third child has three.
If you die and the second child has predeceased you, your assets would be divided accordingly among surviving heirs:
If you die and the second and third child have predeceased you, the assets would be divided accordingly:
Per stirpes helps to ensure that multiple branches of your family get a share of your assets if the beneficiary dies before you’ve had a chance to update your will. Many people do update their wills after a beneficiary dies, designating their grandchildren as the beneficiary instead of their children. In that case, per stirpes wouldn’t apply, since the original beneficiary is no longer the beneficiary.
A per stirpes designation isn’t limited to estate planning. Retirement accounts, like an IRA, might have preset rules in place as to who gets the assets if your primary beneficiary predeceases you. If you don’t like the pre-established guidelines, as the account owner you can try to modify the beneficiary designation form to distribute your assets per stirpes.
Similarly, a life insurance policy can also be instructed to distribute assets per stirpes. If both your primary beneficiary and contingent beneficiaries (secondary beneficiaries) die before you, the life insurance proceeds can be distributed per stirpes. You can read more about what happens if one of your beneficiaries dies before you here.
In the event that the testator’s children (the main beneficiaries) are all predeceased, there is the potential for surviving heirs to end up with uneven shares of the inheritance under per stirpes, as demonstrated in the example above. As you can see, all of the grandchildren, who are at the same generation level, receive different amounts of the inheritance.
With a modern per stirpes beneficiary designation in a will, the grandchildren could each receive an equal share of the assets (in the above case, one-fifth of the estate for each of the five grandchildren) should all of the original beneficiaries (their parents) predecease the testator. Some people might find this more fair and prefer a modern per stirpes method of distributing assets.
With classic per stirpes, your estate is divided up by the number of your predeceased beneficiaries, then divided up again for each predeceased beneficiaries’ children. This means if Child B has less children than Child C, then Child B’s children get more of the inheritance, since it is being divided among less people.
WIth modern per stirpes, the estate is divided equally among the predeceased beneficiaries' children. The entire estate is divided by the number of grandchildren.
Some states automatically interpret per stirpes to mean to modern per stirpes, which is also known as American per stirpes, or confusingly, per capita with representation.
As you think about your estate plan, make sure life insurance is a part of it.
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An alternate method of distributing a decedent’s assets is per capita. Per capita means “by head” or by “headcount.” Essentially, the predeceased’s share will return to the estate, and then be divided equally among other living heirs. The predeceased’s children are not entitled to anything unless you said so in the will.
Let’s look at per capita in its simplest form, using our example with three children and five grandchildren. If you name only your three children as beneficiaries and one of them predeceases you, the assets will only be divided in half between the remaining two siblings. No grandchildren (even the grandchildren whose parent just passed away) will get a share of the inheritance.
If you name all of the children and grandchildren as beneficiaries and designate your assets to be distributed per capita, then everyone will receive one-eighth of a share. If any of them predeceases you, their share will go back to the estate and everyone will now receive a one-seventh share.
Instead of naming your heirs, you can bequeath your assets to your descendants “per capita at each generation.” The assets are still divided equally (as denoted by “per capita”), but also divided up further at the generation level.
Let’s take a look at our example once again. To reiterate, you (the testator) have three children, and five grandchildren. The oldest child has no children, the second child has two, and the third has three.
If you die, and the second and third child have predeceased you, the following will happen:
Designating beneficiaries per stirpes can be useful and help protect your legacy if one of your named beneficiaries predeceases you. As we’ve seen, it will make sure that multiple branches of your family receive a share of the inheritance.
However, the term might leave room for ambiguity and interpretation that you did not intend. As discussed, there are some variations on per stirpes (and per capita, for that matter), and it might not be sufficient to write “per stirpes” in your will without fully explaining it. (State law may take precedence if you aren’t clear about your intentions.) This could get tedious, so you might consult an estate planning attorney to ensure the rightful heirs get the proper inheritance you intended.
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