Naming beneficiaries
For a contingent beneficiary on an IRA, is “lawful children with rights of survivorship” sufficient or does each child’s name need to be actually written out to take advantage of individual stretch IRAs?
For a contingent beneficiary on an IRA, is “lawful children with rights of survivorship” sufficient or does each child’s name need to be actually written out to take advantage of individual stretch IRAs?
Permalink Submitted by Alan - IRA critic on Mon, 2014-02-10 02:30
Individual names are not required to be considered a designated beneficiary. But not sure about your particular description here. Perhaps what you need are “my children, per stirpes”. as right of survivorship is typically used with joint tenancy taxable accounts. Your IRA custodian also has the right to refuse any wording they wish, so you will need their approval of your wording.
Permalink Submitted by Jared on Mon, 2014-02-10 05:39
In my experience, Charles Schwab would not allow “My descendants, per stripes” as a contingent beneficiary.
Permalink Submitted by Bruce Steiner on Mon, 2014-02-10 17:01
If that’s true, it’s a major problem. Most IRA owners would want their issue, or trusts for their issue, as beneficiaries (either primary or contingent), with the share of a deceased person going to or in trust for the deceased person’s issue. If that’s true, the only practical solution is to move the IRA to a different financial institution. However, before doing that, you might want to see if you can negotiate with them to see if there is any language acceptable to both you and them.
Permalink Submitted by J Futch on Wed, 2014-02-12 14:05
What exactly does “lawful children with rights of survivorship” mean? Does it mean the exact same thing in every state? And, how would you expect the custodian to confirm the identities of the applicable beneficiaries? Seems to me it would be easier in the long run to at least name your children (especially if you are older and not expecting to have more children) and any grandchildren that are in existence at the time and then add additional language if needed to cover further descendants? I just foresee a cluster when it comes time to pay transfer the assets to the beneficiaries. How is the custodian supposed to know you didn’t have an “illegal” child (you know what I mean) or what if two of your three children conspire against the third and don’t tell the third child about the account, but then tell the custodian they are the only “lawful children”. I realize this is more around the custodian’s procedures around processing the death transfers, but it is something to think about. The more clear you can make your designation while you are alive, the less time, paperwork, attorneys and stress involved to get the funds to the beneficiaries in the first place.
Permalink Submitted by Bruce Steiner on Wed, 2014-02-12 23:19
Naming the children and grandchildren creates complexity. What if a child predeceases the IRA owner, and one of the child’s children (the IRA owner’s grandchild) also predeceases the IRA owner? What if a child precedeases the IRA owner without leaving any issue. Using the words “my issue per stirpes” probably saves a page or two compared to listing the children and grandchildren and providing for the various contingencies, and substantially reduces the chance of error. “Lawful children” is a term used many years ago to exclude nonmarital children, but most clients want to include nonmarital children of a female, and in most cases also want to include nonmarital children of a male. The way to satisfy the custodian is to provide that the custodian can rely on the certification of the IRA owner’s executors as to the identity of his/her issue.