per stirpes--IRA beneficiaries

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JGoneRiding
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per stirpes--IRA beneficiaries

Post by JGoneRiding »

So I think I have this right but just wanted to double check. Just got married so updating beneficiary accounts. Neither DH nor I have children but we want to at some point. There is the option to check "per stripes" Which to me means if we DO have children and something happens to us both together then it would go to them (children) before going to my contingent beneficiaries. But it would NOT go to my Husbands other heirs (mother, siblings, neice/nephew). So if something happens to us both still childless then my heirs (mother/nephew) would inherit the IRA---The only thing I don't like is it only has a 120 hour survivability clause I really wish it was 30 days.

This is how the paperwork states "per stripes" definition: if the beneficiary predeceases you...will distribute to his/her living children (natural or adopted but not step children), if any, in equal shares. If there are no living children...portion will be distributed to other beneficiaries (primary or contingent as appropriate) in equal shares.


I specifically wrote NO next to my mother's name as I don't want my brothers to have funds but rather if we are all dead to go to my nephew (there is just one and I won't have any more than that ever)

I think I have it right but just wanted to check with you smart people. Per stripes gets confusing!
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jhfenton
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Re: per stripes--IRA benefeciaries

Post by jhfenton »

The term is "per stirpes," and it means that it will pass to your descendents with your surviving children taking equal shares and any (grand)children of predeceased children splitting their deceased parent's share.

So, 3 kids, 1 of them already deceased with 2 (grand)kids = 1/3 to each surviving child, 1/6 to each (grand)child of the deceased child. (Grand)children of the still living children would get nothing directly.
Alan S.
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Re: per stirpes--IRA beneficiaries

Post by Alan S. »

I don't think "per stirpes" is appropriate in this situation.

You would name DH as primary beneficiary, "my children" as secondary beneficiaries, and your nephew as tertiary beneficiary.

In event of a common disaster the state simultaneous death statue would determine the survivor period if the IRA agreement does not specify one. If DH does not reach the survival period, your children inherit, but if there are no children, your nephew would inherit.
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Kevin M
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Re: per stirpes--IRA beneficiaries

Post by Kevin M »

Having settled a few estates, my preference is to avoid per stirpes, and just keep my primary and contingent beneficiaries up to date. It will be simpler on your heirs that way.

Kevin
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Rupert
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Re: per stirpes--IRA beneficiaries

Post by Rupert »

Kevin M wrote:Having settled a few estates, my preference is to avoid per stirpes, and just keep my primary and contingent beneficiaries up to date. It will be simpler on your heirs that way.

Kevin
+1. Avoid per stirpes designations and just update your beneficiary form each time you have a new child. It's actually good to get into the habit of reviewing all your beneficiary designations annually.
Bill M
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Re: per stirpes--IRA beneficiaries

Post by Bill M »

I suggest avoiding per stirpes. Put in real names for the beneficiaries, and keep it updated (check it at least yearly). Its not hard.

Most Bogleheads are DIY'ers, and are concerned about costs. The "per stirpes" means the IRA can't be handled in the estate without a lawyer and probate court involved (custodian of the IRA needs to be told who the descendants are, and they want that from the executor, and the executor needs the probate court documents to prove they are executor, and getting the probate court documents requires a lawyer to sign the forms). And the probate court I recently had to deal with also required a surety bond since I was out of state, and that added extra $$$ and absolutely required the lawyer to represent the interests of the surety company. So figure on an extra cost of $10K-$20K.

IRAs with named beneficiaries only required a couple of (notarized) letters to the custodian and a copy of the death certificate. Easy.
carruthers209
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Re: per stirpes--IRA beneficiaries

Post by carruthers209 »

Thanks for that really helpful detail about how probate kicks in with a per stirpes designation. I had no idea-thought I was doing well to designate per stirpes. Back to my beneficiary checklist for me! and double check what I put down.
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Kevin M
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Re: per stirpes--IRA beneficiaries

Post by Kevin M »

I'm not sure the probate thing is correct.

I'm pretty sure that my brother's Vanguard inherited IRA beneficiary designation was set to "To my descendants who survive me, per stirpes" (I just checked, and verified that this is an option you can set online at Vanguard). I was his successor trustee, and upon his death, helped his daughter with transferring ownership of the IRA to her (even though this is not the responsibility of a successor trustee). I know there was no probate involved, since I handled everything personally (including helping his daughter with the inherited IRA).

I'm pretty sure he used the "per stirpes" designation, since I remember being nervous about the following.

Say my brother had had another child that he had not raised as his own, and that he had no interest in leaving anything to. If this potential child had somehow found out about my brother's death, she could have claimed half of the IRA and caused us a bunch of grief. I know for a fact that the "per stirpes" designation was simply an oversight that did not account for this possibility.

So whether or not the probate thing is true, I would keep scenarios like this in mind.

Kevin
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Peter Foley
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Re: per stirpes--IRA beneficiaries

Post by Peter Foley »

I think there are very valid reasons to use per stirpes in wills. (Feel free to correct me if I am wrong.) Here are two immediate family examples:

1. Childless person purposefully leaves estate to two of four siblings in will (estranged from 2 siblings and their families). Suffers from dementia. Both of the named heirs predecease their childless sibling. If "per stirpes", the estate goes to the families of the two siblings. If not, estate goes to the four families.

2. Parent leaves estate to be divided evenly among 4 siblings. One sibling is high income and is subject to inheritance tax (at some future date when sibling and spouse die) based on their assets prior to inheritance. The high income sibling might have an interest in disclaiming the inheritance so that it passes immediately to their children (per stirpes), but cannot do so without this provision or their share would pass to their siblings.
Alan S.
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Re: per stirpes--IRA beneficiaries

Post by Alan S. »

The rule of thumb should probably be to avoid per stirpes if other solutions are equal or better. But there might be situations where it provides a definite advantage over other options, so it offers a valid solution at times.

For years VG would not accept per stirpes designations, likely due to the addition cost of determining who the proper beneficiaries were or were not. There can be considerable discovery time and costs involved. If I recall correctly, VG will now accept per stirpes, at least for Flagship clients.
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Re: per stirpes--IRA beneficiaries

Post by bsteiner »

JGoneRiding wrote:So I think I have this right but just wanted to double check. Just got married so updating beneficiary accounts. Neither DH nor I have children but we want to at some point. There is the option to check "per stripes" Which to me means if we DO have children and something happens to us both together then it would go to them (children) before going to my contingent beneficiaries. But it would NOT go to my Husbands other heirs (mother, siblings, neice/nephew). So if something happens to us both still childless then my heirs (mother/nephew) would inherit the IRA---The only thing I don't like is it only has a 120 hour survivability clause I really wish it was 30 days.

This is how the paperwork states "per stripes" definition: if the beneficiary predeceases you...will distribute to his/her living children (natural or adopted but not step children), if any, in equal shares. If there are no living children...portion will be distributed to other beneficiaries (primary or contingent as appropriate) in equal shares.

... Per stripes gets confusing!
You're close. Per stirpes means that if a child predeceases, the deceased child's share goes to his/her children. However, it doesn't stop there. If one of the deceased child's children also predeceases, his/her share goes to his/her children, and so on.

It becomes relevant if two or more of your children predecease you leaving different numbers of children.

For example, if you have two children and they both predecease you, and one left two children and the other left three children, per stirpes means the one child's 50% is divided between his/her two children and the other child's 50% is divided among his/her three children. Per capita means that the five grandchildren each get 20%.

There's yet one more possibility. Suppose you have three children. One survives, one predeceases you leaving two children, and one predeceases you leaving three children. By representation means 1/3 to the surviving child, and 2/3 divided equally among the five grandchildren from the predeceased children.

You should make it clear which of the above you want.

However, if you don't yet have children, it's a bit early to worry about what would happen if two of your children predecease you leaving different numbers of children.
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Kevin M
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Re: per stirpes--IRA beneficiaries

Post by Kevin M »

Alan S. wrote: For years VG would not accept per stirpes designations, likely due to the addition cost of determining who the proper beneficiaries were or were not. There can be considerable discovery time and costs involved. If I recall correctly, VG will now accept per stirpes, at least for Flagship clients.
They do. See my earlier reply. The online choice is "to my descendants who survive me, per stirpes". I'm almost certain this was allowed at least as early as 2008.

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JGoneRiding
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Re: per stirpes--IRA beneficiaries

Post by JGoneRiding »

Lol in the extensive number of children grand children etc. Since I have none yet. But I really appreciate the info as will designations are next. i like the by representation

Maybe I am odd. I find going through this stuff troublesome. While I will certainly review, annually seems so excessive. I have this horrid fear that we will have a child and then something terrible will happen to us both to shortly thereafter to have gotten to fixing things! Hence a desire to set uo wills and designate guardians for as yet unconceived children! Also if i had one child and updated and then had another but did not and something happens child 1 gets it all and child 2 nothing but per stripes would avoid that yes?

The form gives me 2 options, check the per stripes box or not. I don't have a tertiary benefeciary option. It does ask who should assist in identifying heirs. I think that is to help avoid any propate identification issues? Also can you write "my children" if there aren't any yet?

If everyone else is dead my nephew gets it all. And I checked the per stripes box for him, he is only 15 but in case I am really lazy and never update no judge can give it to the state!
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Epsilon Delta
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Re: per stirpes--IRA beneficiaries

Post by Epsilon Delta »

JGoneRiding wrote:If everyone else is dead my nephew gets it all. And I checked the per stripes box for him, he is
only 15 but in case I am really lazy and never update no judge can give it to the state!
You should still worry about your nephew dieing without issue. If you're really serious about avoiding escheating put some long lived charity, such as the Catholic church, down as the final contingency.

Although I have to ask if there is anywhere in the US that where an intestate estate would escheat rather than going to a nephew's issue? I've only checked a few states but where I have all descendants of your grand-parents (which would include your nephews descendants) are somewhere in line before the state.

I've never found the intestate rules to be unreasonable once things get past my closest few relatives. A lot of wills have a final contingency along the lines of "and if all of the above fail distribute according to the intestate laws of the state of ____." Some lawyers consider this to be good form since it means the will always "works".
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tadamsmar
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Re: per stirpes--IRA beneficiaries

Post by tadamsmar »

Kevin M wrote:
Alan S. wrote: For years VG would not accept per stirpes designations, likely due to the addition cost of determining who the proper beneficiaries were or were not. There can be considerable discovery time and costs involved. If I recall correctly, VG will now accept per stirpes, at least for Flagship clients.
They do. See my earlier reply. The online choice is "to my descendants who survive me, per stirpes". I'm almost certain this was allowed at least as early as 2008.

Kevin
Just "To my decendants who survive me" does it according to this:

https://personal.vanguard.com/jumppage/ ... ficiaries/

There are some interesting nuances in these rules.
Last edited by tadamsmar on Thu Nov 19, 2015 3:24 am, edited 1 time in total.
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tadamsmar
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Re: per stirpes--IRA beneficiaries

Post by tadamsmar »

Bill M wrote:I suggest avoiding per stirpes. Put in real names for the beneficiaries, and keep it updated (check it at least yearly). Its not hard.

Most Bogleheads are DIY'ers, and are concerned about costs. The "per stirpes" means the IRA can't be handled in the estate without a lawyer and probate court involved (custodian of the IRA needs to be told who the descendants are, and they want that from the executor, and the executor needs the probate court documents to prove they are executor, and getting the probate court documents requires a lawyer to sign the forms). And the probate court I recently had to deal with also required a surety bond since I was out of state, and that added extra $$$ and absolutely required the lawyer to represent the interests of the surety company. So figure on an extra cost of $10K-$20K.

IRAs with named beneficiaries only required a couple of (notarized) letters to the custodian and a copy of the death certificate. Easy.
This does not ring true. They would want it from an executor, but I have been certified as a executor a couple of times and it required no legal bills. I am in NC, state laws may vary. But I did not have to distribute per stirpes.

I don't see how one can implement per stirpes using named beneficiaries. There are scenarios where the grandchildren would be out of luck, and I am not sure that could be fixed with infinite legal fees. Depends on how near simultaneous deaths are handled.
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