For most people the choice of beneficiaries is simple: Spouse first, then children. For others it may not be that simple-or not stay that simple.
When people open retirement plans, 401(k) plans, they fill out paperwork to name beneficiaries – the people who may one day inherit the assets. But time passes and life changes. Events like marriage, divorce, and having children from two or more marriages can complicate beneficiary designations. Often however, they never go back and change the beneficiaries names on those forms.
If they even think about it, many of them are not concerned because they have a current will or believe the money will go to their estate. What they do not realize is that beneficiaries named on retirement accounts and life insurance policies override their will; and the money may not get passed they way they would want it to today. Even worse, significant amounts can be lost to taxes.
Moreover, two types of distributions to children exist: per capita and per stirpes.
A per capita distribution divides assets equally to each individual at the time of distribution. Unless otherwise specified, the default distribution is almost always per capita.
A per stirpes distribution divides assets equally by person at one generation and then maintains that division by branch in those person’s offspring.
I hope this information is enough to get you thinking about your own beneficiary designations.
Please be sure to review your beneficiary designations on wills, retirement plans, 401(k) plans and make the necessary updates or changes.