Now that you’ve established your retirement account and named beneficiary designations, your legacy planning is complete, and your wishes will be executed exactly the way you intended, right? That may or may not be true. When naming the beneficiary of your retirement account, a much deeper thought process should be considered to ensure your true intentions are fulfilled.
First and foremost, beneficiary designations listed on your life insurance and/or retirement accounts will supersede anything you have written in your will. This also applies to payable on death (POD) for your bank accounts and transfer on death (TOD) designations on your investment accounts. Since beneficiary designations supersede anything named in a will, careful planning should be coordinated with your overall estate plan.
When selecting your beneficiaries, you have two ways to consider how you want your assets to transfer upon your demise: “per stirpes” or “per capita.” “Per stirpes” is of Latin origin, meaning “by branch.” This means if one of your beneficiaries predeceases you, that beneficiary’s share will be passed on to their descendants. “Per capita,” on the other hand, is Latin for “by head”, meaning should one of your beneficiaries predecease you, their share will be divided up amongst the remaining beneficiaries. Both present very different outcomes to your heirs and may cause unintended consequences depending on your true intent.
Now let’s put this into an example. Jane Doe has her three children listed equally as primary beneficiaries of her $300,000 IRA account. One of her three children predeceases her, and shortly after that, Jane passes. Under a “per stirpes” arrangement, the two surviving beneficiaries will receive their $100,000 each, and the remaining $100,000 will pass to the deceased beneficiary’s descendants. Using the same example, under a “per capita” beneficiary arrangement, the surviving beneficiaries will receive $150,000 each, and the deceased beneficiary’s descendants (if any) will receive nothing. Depending on your intent, this may not fit your overall plan.
Proper planning and thoughtful consideration should be made when making your beneficiary designations. The slightest oversight can cause ill-intent towards your loved ones. If you have questions about your beneficiary designations, let’s have a deeper discussion the next time you come into the office.
Investing involves risk. No investment strategy can guarantee positive results. Loss, including loss of principal, may occur. Material discussed is meant to provide general information and it is not to be construed as specific investment, tax or legal advice. Keep in mind that current and historical facts may not be indicative of future results. Diversification is an investment strategy that can help manage risk within a portfolio, but it does not guarantee profits or protect against loss in declining markets.
This content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security. (C) Twenty Over Ten