Per stirpes and per capita designate how assets transfer to beneficiaries.
You know estate planning is important.
You scheduled an appointment with an experienced estate planning attorney.
This attorney create a last will and testament or a trust to meet your specific goals.
You now turn your attention to your beneficiary designations.
According to a recent Kiplinger article titled “These 2 Words Could Send Your Retirement Money to the Wrong Beneficiary,” selecting beneficiaries is a multifaceted process.
What do you need to do?
First you need to ensure your beneficiary designations align with your goals and your other estate planning documents.
Oftentimes, assets without beneficiary designations will pass through your trust if presently titled to the trust or through your last will and testament via probate.
Who should you select as your beneficiary for your retirement account?
The majority of people will select their spouse.
Federal laws protect the rights of spouses to certain retirement accounts.
For example, if you desire a different beneficiary on your 401(k), then your spouse will need to sign a waiver agreeing to your decision.
Once you have named a primary beneficiary, you should select contingent beneficiaries.
These could include children, nieces, nephews, other family members, or a charity.
Have you selected your primary and contingent beneficiaries?
You will need to decide whether you would like these assets to be pass per stirpes or per capita.
What does this mean?
With per stirpes, the descendants of a designated beneficiary will receive the assets if that beneficiary dies before you do.
For example, you designate your two sons as your designated beneficiaries and one dies with children.
With per stirpes, his children inherit their father’s share.
With per capita designations, the money will transfer to your designated beneficiaries only.
Using the previous hypothetical, with per capita your other son inherits and not the children of your deceased son.
What happens if you only listed a primary beneficiary?
Let us say your primary beneficiary dies before you.
Your estate likely will become the beneficiary of the account and the asset will pass through probate.
This means the court will choose who receives your retirement account unless you have a last will and testament.
In most instances, per capita is the default option for retirement accounts.
You will need to proactively change the designation to per stripes, if you desire for the asset to pass to the heirs of a designated beneficiary.
Reference: Kiplinger (July 30, 2020) “These 2 Words Could Send Your Retirement Money to the Wrong Beneficiary