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Don’t Disinherit Your Grandkids

Carl Ostenson

When I do beneficiary reviews, or help clients fill out an annuity application, one of the easiest and neatest things to explain to them is how adding two words to their beneficiary form, can help to insure they don’t unintentionally disinherit their grandkids.

It takes about a minute to explain, and then most people want to update their old forms right away.

Here are all the different types of accounts that have beneficiary forms:

  • Annuities
  • Life Insurance
  • IRAs
  • 401ks, 403bs
  • Some types of bank accounts

With all these different accounts, opened at different times, it’s very common that something is not set up exactly how you want it on an old beneficiary form. You should review your old forms to make sure your money will go exactly where you want it to go.

Introduction to Per-Stripes:

Let’s say you are 65 and you have 2 children. Jack and Jill. Jack and Jill each have 2 kids of their own, so they have given you 4 grandkids.

  • Jack has 2 kids
  • Jill has 2 kids

You have Jack and Jill listed as your beneficiaries of your IRA account. Most of the time this is how people fill out the beneficiary form:

  • Jack         50%
  • Jill            50%

In most cases people fail to write in Per-Stirpes. Either the advisor doesn’t know about it, or the client wasn’t aware either.

Without Per-Stirpes:

If Jack dies before you do. Guess what? 100% of your IRA will go to Jill and her family. She can spend it however she wants and Jack’s kids may get nothing.

Your intentions were probably that Jack’s children would get his share, but instead, all of Jack’s share goes directly to Jill because he died before you did, leaving Jill as the only beneficiary on the form. None of your IRA legally goes to Jack’s surviving family because you didn’t have Per-Stirpes on the form. The money will NOT follow the bloodline unless you add in Per-Stirpes.

So you just unintentionally disinherited 2 of your grandkids.

With Per-Stirpes:

So instead, let’s say you update your forms and now have Jack and Jill Per Stirpes on all of your IRA forms. Then Jack dies before you do. It would look like this on the form.

  • Jack         Per Stirpes          50%
  • Jill            Per Stirpes          50%

Now the money follows the bloodline and Jack’s kids will get their inheritance if Jack dies before you do. It’s an easy fix. You just have to do it.

Here’s a good Wall Street Journal Article on common beneficiary form mistakes (click here).

My disclaimer: I’m not a lawyer or an accountant, so always double check things with them.

P.S. – Some people don’t know where to start in trying to get all their papers updated. It can be overwhelming. A guide can help you with this. This “Retirement Plan Beneficiary Audit Form” can help you get organized and make updating your old beneficiary forms a little easier.  You can get a FREE copy at this link (click here).

Click here (Carl Ostenson) to see more of this author’s articles.

About the Author:

Carl Ostenson specializes in helping his clients use their IRA or 401k to set up their Retirement Income Plan for when they retire. He works with clients in the Chicagoland area and surrounding suburbs.

If you live in Chicagoland and want to talk about annuities with a local guy, give Carl a call at 847-376-8400… there’s never any pressure. To get more about Carl, visit: www.ProtectMyIRA.com.

Be sure to check out his Free IRA Guide titled “How to Get Secure and Predictable Income From Your IRA/401k When You Retire.”

 

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4 Comments

  • John Olsen says:

    Nice article, Carl! It reminds me of when I was a sales manager for a life insurance agency and was training new agents. One of the techniques for getting appointments on the phone with "orphan policyowners" was "Mr. Smith, it doesn't say on my record whether your contingent beneficiary designation will ensure that you don't disinherit your grandchildren. Do you have, or will you have, grandchildren?" From there, it was often fairly easy to get a "policy review" appointment. I made VERY clear that when you use this technique, you MUST keep your promises. Check to see if there's a "per stirpes" designation (there rarely was). Ensure that the client knows what a contingent beneficiary designation means. For childless second marriages where one or both spouses had children by prior marriages, this discussion could be VERY important. Again, Carl, nice job!

  • Hi John. Thanks the kind words. I agree 100%. Reviewing and educating on beneficiary designations it is a very important discussion to have.

  • Sam McCormack says:

    Hi, I'm a student struggling to understand all this per stirpes stuff! Thank you – that was really helpful information explained so clearly.

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