IRA distribution to beneficiary, “per stirpes”
Re: Distribution of my IRA to the beneficiaries after my death.
Premise: My son is one of several primary beneficiaries and is designated “Per Stirpes” (he has two children). There are also multiple secondary beneficiaries.
Case 1: At the time if distribution, if my son is deceased but other primary beneficiaries remain alive, my son’s share (percent I entered on the beneficiary form) would go to his children equally. That is clearly stated in the custodial agreement for the IRA.
Case 2: At the time of distribution, all of the primary beneficiaries are deceased. In this case, does the share assigned to my son as primary beneficiary, per stirpes, go to his children? (If so, I assume the remainder goes to the living secondary beneficiaries.) Or does the entire amount get distributed to the secondary beneficiaries according to the percents given on the beneficiary form? Or is there some other distribution arrangement? The custodial agreement does not specifically address this case.
Thanks for any insight on this issue.
Permalink Submitted by Alan Spross on Wed, 2008-07-02 23:12
Note that “at the time of distribution” does not apply here. The key to a per stirpes designation occurs at the time of your death. If your son is alive at the time of your death, the “per stirpes” is voided, even if he passes the next day.
Case 1: This is correct if you change it to the date of your death from the date of distribution. Also, note that some custodians, particularly Vanguard, would require an estate to be opened to push the burden of proof onto the executor to identify all the per stirpes beneficiaries rather than Vanguard. That would produce potential probate costs.
Case 2: If all deceased primary beneficiaries at your death have contingent beneficiaries, they would receive the appropriate share. The per stirpes designation serves as the contingent beneficiary for that particular son. If it happened that a primary beneficiary did not have a contingent beneficiary, their share could go either to your estate or to any other living primary beneficiaries (more likely) at your death. The IRA beneficiary clauses need to carefully reviewed in this situation.
In the situation you posted where all primary beneficiaries are gone at your death, the secondary beneficiares would get their appropriate shares and so would the per stirpes beneficiaries. In other words, the per stirpes beneficiaries are considered a form of contingent or secondary beneficiary for that particular son.
I would review the wording again, as it would be odd if the agreement did not clarify this. If not, you would have to submit a customized beneficiary wording for acceptance or transfer the account to another custodian. Another solution would be to partition into separate IRA accounts, one for each branch, but then you will have to worry about keeping the values of each account in line.
Permalink Submitted by Bruce Steiner on Thu, 2008-07-03 15:26
[quote=”[email protected]“]some custodians, particularly Vanguard, would require an estate to be opened to push the burden of proof onto the executor to identify all the per stirpes beneficiaries rather than Vanguard. That would produce potential probate costs.
[/quote]
If a child predeceases you, the financial institution can’t possibly know who his/her children are. They have to be able to rely on someone’s certification. The executor is the logical person to certify who the deceased child’s children are.
Almost everyone who has an IRA and gives thought to his/her beneficiary designation has other assets, and leaves a Will which is probated (or, occasionally, dies intestate and an adminstrator is appointed). Probating a Will is generally a routine task, and is generally not particularly expensive or burdensome.
In the unlikely event that there is no executor, there should be some other way to satisfy the financial institution as to who the deceased child’s children are.
Bruce Steiner, attorney
NYC
also admitted in NJ and FL
Permalink Submitted by Steve Riederer on Thu, 2008-07-03 22:36
Alan, Thank you for the helpful answers. Kindly let me check my understanding.
First, I take from your response that the “per stirpes” designation only comes into play if my son dies before I do; if he survives me, “per stirpes” is not in effect. That seems clear from your reply. It would up to my son to name successor beneficiaries, which the custodial agreement does allow. But, if he were to die before naming successor beneficiaries and before my IRA is distributed, it seems like his share (as one of several primary beneficiaries) would go to the remaining primary beneficiaries, proportionately. Is that correct? (The custodial agreement specifies proportionate distribution of a deceased primary beneficiary’s share to other living primary beneficiaries, though not with any discussion of “per stirpes” designations.)
Your discussion of Case 2 was helpful and made clear that “…the per stirpes beneficiaries are considered a form of contingent or secondary beneficiary for that particular son.” Thank you.
But you also said something in the discussion that surprised me: “If all deceased primary beneficiaries at your death have contingent beneficiaries, they would receive the appropriate share.” This seems to indicate that the various primary beneficiaries could each have contingent beneficiaries specific to them. Am I understanding this correctly? If so, how is that done? Is it via “per stirpes” designation for the various primary beneficiaries? Is there some other mechanism to have contingent beneficiaries for the primaries? Thanks for the clarification.
Permalink Submitted by Alan Spross on Fri, 2008-07-04 03:25
Comments on your last post:
First paragraph – here is what happens in your posted scenario in chronological order:
1) You pass before your son (that voids the per stirpes)
2) Your son passes before naming successor beneficiary
3) His remaining share would typically go to his estate under most IRA agreements. The other primary beneficiaries do not succeed to his share at all. If he passed before you did, the per stirpes would prevail. If he passes afterward, his estate would get his share. Other primary beneficiaries would only get his share if he passed first and there was no contingent named by you, either per stirpes or specific contingent.
Again, the above is typical, but is also subject to the specifics of the IRA beneficiary clauses. Your comment about the agreement providing for apportioned shares to the other primaries likely only applies if he dies before you do and there is no per stirpes or contingent beneficiary named by you for his share. So suggest you review the agreement again.
Re your final paragraph –
Yes, you could provide for a contingent beneficiary or per stirpes or per capita for each of your primary beneficiaries if you wanted to. If one of them had no family and you did not name a contingent for that share, usually the other primary beneficiaries would get his share if he passed before you did. If he passed after you did, then his estate would typically get his share. Again, this is subject to the actual agreement.
The beneficiary form provided to you as IRA owner should track with the agreement. Usually, each of your primary beneficiary shares would have a space for you to also show a contingent or per stirpes beneficiary for each particular share. There would not be a blanket contingent beneficiary for all primary beneficiaries unless you indicated the same for each share.
You would need a trust if you wanted to control where each primary beneficiary’s share would go if the primary passed after you did. That would take the decision away from the primary with respect to naming his own successor beneficiary and require that the particular primary beneficiary’s share be paid through the trust to him whiile he lived and to whoever you specified after his passing. It would keep his share of the undistributed portion out of his estate.