IRA BENEFICIARY DESIGNATIONS
PER STIRPES
PER STIRPES
"Per Stirpes".....say what?
Per stirpes means by right of representation. In other words, a predeceased beneficiary's children step into her place and inherit the share that she would have inherited had she not predeceased. So, if A had been designated in B's will, trust or IRA to receive a 25% share per stirpes, but A predeceased B, then A's children would get this 25%; it would drop down to them and be divided among them equally.
The effect of this designation, or lack thereof, in an IRA beneficiary designation is illustrated by the following example:
A widow has two children. She names them as 50/50 beneficiaries of her principal asset, a large rollover IRA. Because she did not know what "per stirpes" meant when she filled out the IRA beneficiary designation form, she did not check the "per stirpes" box under their names nor did she write in the words "per stirpes" after their names on the IRA beneficiary designation form. Sadly, one year after completing the beneficiary designation form, one of her children predeceases her, leaving two children of his own (these are her only grandchildren, the apple of her eye). Two years after that, the widow herself dies, having made no changes to her IRA beneficiary designation.
The question:
At her death, how did her IRA pass?
The answer:
100% to her sole surviving adult child, with nothing passing to her two grandchildren.
Because of her inadvertent omission of the words "per stirpes", her late child's 50% share of the IRA does not pass down to his children (her two grandchildren). When the words "per stirpes" are missing, the beneficiary designation typically defaults to "per capita" meaning that only those named beneficiaries who are alive at the death of the IRA owner inherit the IRA.
Is it OK to name my estate as the beneficiary of my IRA?
NO. Unless your estate is passing completely to charity, it is always better to designate individual beneficiaries than to name your estate as the beneficiary of your IRA.
What happens if an IRA is payable to the owner's estate?
If there is no beneficiary named on an IRA, it passes to the owner's estate. There are steps that can be taken by the fiduciary in that situation to direct the custodian to create a separate inherited IRA for each residuary beneficiary under the Will or for each heir who inherits under the laws of intestacy, if there is no will. This has to be done within a specific time following the IRA owner's death. The Secure Act passed in December of 2019 requires, with certain exceptions, that non-spousal IRA beneficiaries fully withdraw inherited IRAs by 12/31 of the tenth year following the year of death.
Per stirpes means by right of representation. In other words, a predeceased beneficiary's children step into her place and inherit the share that she would have inherited had she not predeceased. So, if A had been designated in B's will, trust or IRA to receive a 25% share per stirpes, but A predeceased B, then A's children would get this 25%; it would drop down to them and be divided among them equally.
The effect of this designation, or lack thereof, in an IRA beneficiary designation is illustrated by the following example:
A widow has two children. She names them as 50/50 beneficiaries of her principal asset, a large rollover IRA. Because she did not know what "per stirpes" meant when she filled out the IRA beneficiary designation form, she did not check the "per stirpes" box under their names nor did she write in the words "per stirpes" after their names on the IRA beneficiary designation form. Sadly, one year after completing the beneficiary designation form, one of her children predeceases her, leaving two children of his own (these are her only grandchildren, the apple of her eye). Two years after that, the widow herself dies, having made no changes to her IRA beneficiary designation.
The question:
At her death, how did her IRA pass?
The answer:
100% to her sole surviving adult child, with nothing passing to her two grandchildren.
Because of her inadvertent omission of the words "per stirpes", her late child's 50% share of the IRA does not pass down to his children (her two grandchildren). When the words "per stirpes" are missing, the beneficiary designation typically defaults to "per capita" meaning that only those named beneficiaries who are alive at the death of the IRA owner inherit the IRA.
Is it OK to name my estate as the beneficiary of my IRA?
NO. Unless your estate is passing completely to charity, it is always better to designate individual beneficiaries than to name your estate as the beneficiary of your IRA.
What happens if an IRA is payable to the owner's estate?
If there is no beneficiary named on an IRA, it passes to the owner's estate. There are steps that can be taken by the fiduciary in that situation to direct the custodian to create a separate inherited IRA for each residuary beneficiary under the Will or for each heir who inherits under the laws of intestacy, if there is no will. This has to be done within a specific time following the IRA owner's death. The Secure Act passed in December of 2019 requires, with certain exceptions, that non-spousal IRA beneficiaries fully withdraw inherited IRAs by 12/31 of the tenth year following the year of death.
