Everyone plans ahead; it is human nature to do so. You plan for your future and often you will plan and save for your retirement. It is also natural to plan for the eventuality of what will happen to your family after you are gone. By enlisting the services of an estate planning attorney. Such an attorney will work with you to create estate plans, trusts and wills – in order to ensure that the next generation of your lineage is protected and secure.
The problem however, is that your IRA and various retirement plans, may not fall under probate law. Guidance is needed in order to ensure that the next generation will receive the appropriate assets and pay the least amount of taxes. This is determined by your beneficiary designation form. If assets such as your IRA and retirement plan are not designated to a specific beneficiary – it may be paid to your estate directly. While this may not seem like an issue, you need to remember that once an asset becomes a part of your estate; it is subject to probate law, which can be a lengthy and expensive process.
Naming your beneficiaries is never a one time process and it is important to meet regularly with your attorney to ensure that everything is in order and review your listed beneficiaries. There is no way to predict the outcome of each person’s life, relationships with people can change or be affected by almost anything such as separation, divorce or death. For example, you may have remarried and had children with someone else – if you had to pass on but your former spouse was the sole beneficiary, then your current spouse and children would not be protected or receive anything.
You need to remember that there are two distinct ways to allocate IRA and retirement assets, “Per Capita” and “Per Stirpes”:
Per Capita
In legal terms, this means that the allocation of the assets will only go to specified/named beneficiaries. If a beneficiary has to pass on, his or her heirs will not receive anything from the estate and the remaining allocation will go to a named beneficiary.
Per Stirpes
In legal terms, this means that even if a specified/named beneficiary has to pass on, the allocation of the assets will go to his or her children.
A simple example would be if you had elected your two children to be the shared beneficiaries of your assets. If you had chosen to distribute the assets per capita, and your son had to pass on before you, the assets would automatically go to your other child, and not your deceased sons’ family. If you had chosen to distribute the assets per stirpes, then your deceased sons’ family would be the recipients of his inheritance from you.
This is one of the main reasons why it is always important to meet with your estate planning attorney and ensure that not only the correct beneficiaries are listed, but that the distribution of your assets is suited to what you want for your family and future generations.