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:
- Life Insurance
- 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.
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.
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).
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