For most people the
choice of beneficiaries is simple: Spouse first, then children. For others it
may not be that simple—or not stay that simple. Let’s see what we can learn.
The most common cases
requiring beneficiary designation are on wills and trusts and on financial
accounts like qualified retirement plans,
annuities, etc. Some provide for “transfer on death,” which accomplishes
essentially the same thing.
Most people assume that if they die without designating a
beneficiary, assets automatically go to their spouse, and then to their
children. This may prove true, but the determination can require a costly, unnecessary probate process, tying up money
in court for many months. It’s better to avoid that result.
Events like divorce
and remarriage, and having children from two or more marriages can complicate
beneficiary designations. If you
remarry, do you want all your assets to go to the new spouse, and then
to the spouse’s children—perhaps some of them biologically yours, others
not—rather than or in addition to your
children from the previous marriage? Do you want to include stepchildren?
If you have not remarried, do you want to include your ex-spouse?
Moreover, two types of distributions to children exist: per
capita and per stirpes.
Per capita—literally, “per head” in Latin—divides assets
equally to each individual at the time of distribution. Unless otherwise
specified, default distribution is almost always
per capita.
Per stirpes—“per
root”—divides equally by person at one generation and then maintains that
division by branch in those person’s offspring. For instance, $10,000 divided
per stirpes between a brother and sister would be $5,000 each if they are both
alive at the time of distribution. But if they are both gone, and the brother
had 10 children and the sister 2, his children would get $500 each and hers
$2,500 each. If one of the 10 had died leaving 4 children, they would share
$500, receiving $125 each.
The difference becomes
important if you want to include grandchildren and even great-grandchildren in an inheritance.
I hope this brief general survey is enough to get you
thinking about your own beneficiary designations.
If I
can help you with updating or changing any of your financial arrangements or if
you have
questions, as always feel free to contact me.
