What Happens to Your Assets if an Heir Precedes You in Death?

Apr 6, 2023
Estate Planning
What Happens to Your Assets if an Heir Precedes You in Death?

Creating an estate plan allows you to determine how to allocate assets to your heirs. If you are like most, you distribute the lion’s share among your children or designated individuals, with the understanding that when they pass, any of their assets will pass on to their heirs. Any inheritance they still have from your estate will also go to their designees.

Something you might not consider is what happens if one of your heirs dies before you. Even with an estate plan, there is more than one potential avenue for asset distribution if an heir precedes you in death. If you don’t use language that specifies contingency rules, you may inadvertently deny loved ones an inheritance you intended them to have. Let’s talk about three contingency distribution possibilities that can help you avoid this dilemma.

1. “Per Capita” Distribution

Under normal circumstances, you designate your heirs with the expectation that you will precede them in death. You may determine that you want your children to receive an equal share of your assets. If you have three children, they would each receive a third. It would then be up to them to determine how to distribute their assets among their heirs.

However, asset allocation is not given if one of your children passes before you do. One common distribution approach is the “per capita” — or, by the head — method. Using this language establishes that your named heirs receive their portion of your assets. If one of your children dies, leaving behind their own children, your grandkids won’t inherit your child’s share of your assets. That deceased heir’s share gets split between the remaining heirs.

Instead of dividing your assets three ways, the language indicates that only your other two children will receive an inheritance. Per capita distribution stops at your named heirs.

2. “Per Stirpes” Distribution

Another possibility is the “per stirpes” approach. When you include this language in your last will and testament or trusts, you stipulate that you want your assets distributed “by the branch.” Doing so ensures that your assets don’t stop with the named heirs. Should one of your children precede you in death, your grandchildren from that child would split a third of your assets after you pass.

However, at AmeriEstate, we want you to know about another sticky point with the “per stirpes” approach. The “by the branch” language stipulates that designated assets pass to the heirs’ offspring should your heir die before you. If one of your children has two kids and the other has one, the two siblings would split their parent’s third of your assets, while the only child would receive their parent's entire third.

3. Representation Distribution

A third option protects each generational class of heirs, treating everyone from the same generation equally. Therefore, if two of your children pass before you, but they each have a different number of offspring, all your grandkids from those two heirs would receive an equal distribution. Your surviving child, on the other hand, would still receive one-third of your assets.

Estate Planning With Informed Contingency Distribution

Make sure you have the information you need to create an estate plan that establishes your wishes for asset distribution. AmeriEstate’s partners help you choose the right approach for you. Contact us today for a free consultation.