You can assign beneficiaries to practically any type of investment account. In fact, most account applications embed a section where beneficiaries can be named. You may also see “Per Stirpes” checkboxes in this section. From the Latin meaning “by the branch” a Per Stirpes election divides an estate among the branches of a family. These designations are typically used to protect the inheritance of grandchildren. The following examples illustrate how the Per Stirpes designation can change who inherits an investment account.
Example 1: Sally is the single mother of two children, Tom and Jane. Sally names each of her children as a 50% beneficiary of her IRA account. In this example, let’s assume she DOES NOT make the Per Stirpes election for either of her beneficiaries. Tom and Jane each have children of their own (Sally’s grandchildren). If Tom predeceases Sally, then Jane will inherit the entire IRA when Sally dies. Tom’s child will receive nothing.
Example 2: Same situation – Sally names Tom and Jane 50/50 beneficiaries of her IRA, but in this example, she DOES make the Per Stirpes election by checking the Per Stirpes box beside the name of each child. In this scenario, if Tom dies before Sally, his children will inherit the 50% of the IRA originally designated for Tom when Sally dies. Jane will receive the other half of the account. So, with Per Stirpes elected, the inheritance continued onto Tom’s branch of the family, even though Tom’s children were never specifically named.
As always, please consult with your estate planning attorney to ensure account title, beneficiary designations, etc. align properly with your overall estate plan.
