Tool for Grandparents to Use to Get Inheritance to Grandchildren

senior woman and younger woman looking over paperwork

Grandparents’ Treasures 

It happens quite often when you are driving down the road–you pull up behind a big RV with a bumper sticker which reads, “Spending our childrens’ inheritance.” You also find on the bumper of a big RV the sticker reading, “If we would have known how great our grandchildren were going to be we would have had them first.” The one I chuckle most about though is the one, “My grandchildren are smarter than yours.” It always makes me want to jump out of the car and quickly write on the sticker, “It’s apparent you haven’t met mine.” In any event, grandparents are thinking about their descendants and expressing concern and interest in their well-being. 

Something the grandparents may not know when they are planning the transfer of their assets to their descendants is the legal term “per stirpes” and how it can affect the transfer of assets.

Definition of Per Stirpes

This is a latin term meaning to follow the root or the branch. We would probably describe it as “to represent” in our modern estate planning. 

It is a stipulation that, should a beneficiary pre-decease the testator, the person who made the will, the beneficiary’s share of the inheritance goes to his/her heirs. Here is an example:

Dick and Jane are a married couple with two children, Skippy and Gertrude. Skippy has two children, Larry and Carrie. Dick dies leaving all of his portion of the estate to Jane. Shortly after his death, Skippy also dies. A couple of years later, Jane also dies. Since the property was held in per stirpes, Gertrude gets 50% and Larry and Carrie each step up to represent Skippy’s share, each receiving 25% of Skippy’s portion. These settlements are properly planned for by the use of a will and other legal documents required by the State to cover such an event. Each recipient is responsible for transferring assets and settling taxes and other estate expenses.

Use of Per Stirpes Beneficiary Designation

Life insurance policies are legal documents which have their own legal standing and they pass to beneficiaries outside the control of a will. This is done by having beneficiary designations instructing the insurance company what to do with the death benefits. Here is how this works. 

Dick and Jane are grandparents carrying $500,000 life policies naming each other as beneficiary on those policies. Skippy and Gertrude are named as beneficiaries with equal shares. Skippy has two children Larry and Carrie. 

Dick dies leaving his proceeds to Jane who uses an interest only settlement option with which the insurance company starts a quarterly payment as the interest accrues to Jane. Skippy dies and a few months later Jane passes away leaving the death benefit from Dick’s policy and her own to Gertrude. However, since a “per stirpes” designation was used when beneficiaries were designated, Larry and Carrie step up representing Skippy so they are entitled to proceeds from both Dick and Jane’s life insurance policies. Gertrude gets 50% and Larry and Carrie each get 25%, equaling the 50% Larry would have received had he been alive. Since these proceeds are from death benefit under laws governing life insurance death benefit, they are received income tax free by each party involved.

If the per stirpes designation had not been used and Gertrude would still want to make things right with Larry and Carrie, she would have to deal with the consequences of gifting and tax ramifications. 


With this estate planning tool Grandma and Grandpa can still tease with the bumper stickers; and the grandkids can have a plaque of their own which reads, “There is no place like home except Grandma’s.” 

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