What do per stirpes and per capita mean?
You may be wondering what per stirpes and per capita mean. It first helps to understand the difference between primary and contingent beneficiaries. Your primary beneficiary is the first person in line to inherit your retirement account when you die. If all of your primary beneficiaries pass before you do, your contingent beneficiaries inherit your account. But what if only one of the primary beneficiaries of your IRA dies before you do? Who gets that person’s portion of the inheritance when you pass away? The answer lies buried within your original account paperwork, and is dependent upon whether you selected per stirpes, per capita, or something else next to your beneficiary designations. Per stirpes, (Latin for by branch) and per capita (by head) set rules on how your retirement account gets distributed if a beneficiary dies before you. In either case, that person’s portion of your IRA will go to their kids, but the amount that each child receives may vary. Per stirpes stipulates that if a beneficiary dies before you, his or her children inherit that person’s money. On the other hand, per capita looks at the total number of living beneficiaries and heirs, regardless of generation, and divides up the account evenly among everyone.
Should I elect per stirpes on my taxable accounts?
Wondering if you should elect per stirpes on your taxable accounts? Per stirpes, per capita, and similar designations typically apply to retirement accounts and not taxable accounts because those fall under your trust or will. However, if you do not have a trust or will, beneficiary designations can be set on taxable accounts to direct how that money gets divvied up at death, just like with retirement accounts. Per stirpes is a key component of comprehensive estate planning. Many people spend their entire career contributing to a retirement account and watching it grow, but when it comes to filling out their account paperwork, they rush through it and never think about it again – or check to make sure it’s correct and up-to-date. At BWM Financial we think it’s important to review your beneficiary designations with you every few years, and always after any major life changes. Families quickly grow and shrink, so it’s important that your retirement account designations remain current. See our estate planning checklist for more on asset titling and a step-by-step guide to make sure your finances are in order when it comes to your estate.
To learn more, click here.