Estate Planning 101 (06/05/2017)

The thought of estate planning can be overwhelming, but it doesn’t have to be. Anyone can take basic steps to put their accounts and assets in order.  The cost is minimal and the process is often simple.  Certain types of accounts or policies, such as life insurance, annuities, IRAs, and many other retirement type accounts, can pass directly to your heirs by simply naming your beneficiary on a form. 

A beneficiary designation form allows you to name primary beneficiaries as well as contingent beneficiaries.  For example, it would be common to name your significant other as your primary beneficiary followed by your children as contingent, in the case that something unexpectedly happens to you both simultaneously. Along with naming your primary and/or contingent beneficiaries, you can categorize the type of designation as Standard, Per Stirpes, or Per Capita. 

The Standard designation is probably the most common.  This designation means that upon your death, the assets held within the account will be distributed to your select beneficiary(ies).  In the event that a beneficiary predeceases you, their percentage will be divided, on a pro-rata basis, among the remaining primary beneficiaries.   If you had named three children to receive 33 1/3% of the proceeds and one child had passed away, the account would be split 50/50 between the two remaining children.

Per Stirpes means that upon your death, the assets held within the account will be distributed to your selected beneficiary(ies) as normal.  In the event that said beneficiaries predecease you, his or her percentage is passed on to their family.  If he or she has no surviving family, the funds will be divided among your remaining beneficiaries on a pro-rata basis.  For example, if you named your three children equally as mentioned above, and one had predeceased you, their family would receive the 33 1/3% rather than the amount being divided equally between the remaining two children. 

Per Capita means that upon your death, the assets held within the account will be distributed to your selected beneficiary(ies) as normal.  In the event that said beneficiary(ies) predecease you, his or her share is divided equally among both his or her family, as primary beneficiaries and the remaining beneficiaries named by you.  If he or she has no surviving family, the funds will be divided among the remaining beneficiaries on a pro-rata basis.  Per Capita can have a similar result to Per Stirpes if all children are surviving. However, in a situation where only one of the children survive, they will still receive their 33 1/3%.  Of the two deceased children, Child A had two grandchildren and Child B had three grandchildren.  The remaining 66 2/3% is divided equally among the 5 grandchildren.  Essentially, Child A’s family would receive 26.67% and Child B’s family would receive 40%.

Your options can be simple or complex. However, choosing a designation is one way to make sure your wishes are known, and often this can be accomplished by completing your Beneficiary Designation form. There are so many things that change in life; remember to review your beneficiary designations occasionally to keep up with those changes.

By Lisa A. Dugan

Posted June 5, 2017 at 1:00.