Understanding Beneficiary Designations: Per Stirpes

When it comes to estate planning, beneficiary designations play a crucial role in ensuring your assets are distributed according to your wishes after your passing. A common method used in beneficiary designations is Per Stirpes. I am here to summarize it with easy-to-understand explanations and helpful charts.

Beneficiary Designations: An Overview

Before diving into Per Stirpes and Per Capita, let’s quickly review what beneficiary designations are. A beneficiary is an individual or entity designated to receive your assets, such as life insurance proceeds, retirement account funds, or investment accounts after you pass away. By specifying beneficiaries, you ensure that your assets go to the right people and organizations without the need for probate.

Important Note!

1. Beneficiary designation is a simple but extremely powerful tool. Once a person has been named the beneficiary, the account will go to that person. You should always review your beneficiary designations and update them in a detailed financial review. For example, you may want to change the beneficiary after a divorce or the creation of estate documents. A common misconception is that a Will can cover all your wishes. This is not true. The beneficiary designation on an account will supersede the Will. Even in the event of a divorce, your ex-spouse may receive the benefit instead of your intended beneficiary if you do not update your beneficiary designations.
2. Each financial institution has its beneficiary forms and distribution method. While this article covers the most common way it works, you should verify with your financial institution how it will distribute funds in the event of your death and ensure it matches your wishes.

Now, let’s explore how Per Stirpes works on beneficiary designations.

Per Stirpes

Per Stirpes, which translates to “by branch” or “by roots” in Latin, is a method of distributing assets among a group of beneficiaries. This method is particularly useful when your primary beneficiaries have children (your grandchildren) or heirs who may inherit in their parent’s place if they are no longer alive. Please note that this only includes decedents, meaning that the beneficiary’s spouse will not receive the inheritance.

Let’s assume you have two children, Alice and Bob, and you’ve named them primary beneficiaries equally. Alice has two children, Carol and Josh, while Bob has one child, Eve.

Here’s how Per Stirpes works if the account owner passed away:

If Alice and Bob are alive, they will each receive 50% of the account.

If Alice is deceased, her share will be divided equally between Carol and David. Each will get 25% of the account.

If Bob is deceased, his entire share will pass to Eve since she is an only child.

Without Per Stirpes

If you didn’t elect Per Stirpes, and one of the primary beneficiaries is already deceased, the proceeds will be given to the surviving beneficiary. Going back to the first example, if Alice dies, 100% of the account will be given to Bob. Carol & Josh will receive nothing.

Oftentimes, you can elect contingent beneficiaries on Beneficiary Designation Forms. Please keep in mind that contingent beneficiaries will only receive the account if all the primary beneficiaries have died. In the above example, even if you named Carol and Josh as contingent, 100% of the account will still go to Bob.

Making the Choice

When deciding between using Per Stirp beneficiary designations or not, consider your family dynamics and how you wish to distribute your assets. If you want to ensure your grandchildren inherit in their parent’s place, Per Stirpes may be the way to go. On the other hand, if you want to distribute your assets among all your primary beneficiaries first, you may want to avoid using Per Stirpes. A typical case is when the account owner has no heirs and makes their siblings or friends the primary beneficiaries. The hope is to pass assets among them. However, in the event that all the primary beneficiaries are deceased, the account can be given to contingent beneficiaries. Often, it could be charities or extended family members.