A little two-word mistake can cause enormous heartache within a family. “Per stirpes” is a legal term that affects how inheritance is distributed. I don’t want the complexity to scare you. With just a little information you can feel confident and make your decisions from a place of clarity. Let’s tackle “per stirpes” now, so that you can use it wisely.
As a widow, you have greater responsibility to understand beneficiary designations on assets such as life insurance, IRA’s, 401(k)’s, etc. Failing to properly name beneficiaries on retirement accounts and insurance policies is one of the most common estate planning mistakes.
To begin with, here is the correct pronunciation. It is “per-stir-peas” not “per-stirps”. Now you can feel confident in conversation when talking to your professional team.
Next, “per stirpes” is most often used when you are updating your beneficiary designations after your husband’s death. The deliberate choice to use or not use this term ensures the proceeds will move to your beneficiaries as you intend them to inherit it (since your husband is no longer your primary beneficiary). Let’s look at an example:
Your three sons, A, B, and C, are named equal beneficiaries of your retirement account. Son A dies unexpectedly. You are so grieved by A’s untimely passing that you fail to update your beneficiary forms after his death.
Unless you designated otherwise, when you pass away, B and C will split A’s share. If that’s what you wanted, that’s no problem. But, what if A had children of his own and you want those kids to get A’s share? That’s where the term “per stirpes” comes in.
Instead, if you had named your three sons beneficiaries and added the “per stirpes” designation on the form, when you pass, A’s one-third portion of your retirement account now goes to his children.
The technical definition of the term “per stirpes” comes from Latin and means “per branch” or taking by right of representation; the group or class (branch) receives by representation and in equal shares what their deceased parent would have been entitled to receive. If you have grown children as your beneficiaries and your intention is for your children’s children to receive their parent’s share of the proceeds should a grown child predecease you, use “per stirpes” on the beneficiary forms.
That’s it. You can now feel confident you are properly taking care of the finances when it comes to your beneficiary intentions for your kids. It’s one more addition to your repertoire as a smart decision maker.
Action Step: Review any accounts with beneficiary designations. Depending on your specific family situation, determine if “per stirpes” should be added after each beneficiary’s name. Email me at laura@wealthcare4widows.com if you have any questions, or leave a comment below.
The information contained in this blog is for general financial education and should not be construed as individual financial advice. Any opinions are those of Laura Amendola and not necessarily those of RJFS or Raymond James. The information contained in this report does not purport to be a complete description of the developments referred to in this material. Raymond James does not offer legal advice. You should discuss any legal matters with the appropriate professional.
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