Wednesday, March 21, 2018

Per Stirpes or Per Capita - Know the Difference


“Make sure your life insurance policy correctly lists your beneficiaries and how you want the money divided because you won’t be around to fix any mistakes if it’s not,” Natasha Cornelius writes in Quotacy.

Primary, secondary, and tertiary beneficiaries
If 100% of the policy proceeds are set to go to one person, that’s your primary beneficiary. But in case the beneficiary is unable to receive the proceeds, you can name a secondary beneficiary. A tertiary (third in line) beneficiary would be the backup if both primary and secondary beneficiaries are unable to receive the death benefit.

A simple example Quotacy gives is this: John Smith has a $500,000 life insurance policy and names his wife as primary beneficiary.  In case John and his wife die at the same time, John names his brother as secondary beneficiary.  As tertiary beneficiary, John names his favorite charity.

Per stirpes beneficiaries and per capita beneficiaries
Stirpes means “branch”.  If you say you want the proceeds of your life insurance to go to Lilly Brown and Donald Brown, per stirpes, then if Lilly is not alive to receive the money, her two children would split only Lilly’s portion of the inheritance. Don Brown would still get his 50%.

If you use the words per capita (per head), and Lilly has died along with you, your life insurance proceeds would be split evenly among Don and Lilly’s two children, with each receiving one-third.

It’s not only life insurance where you choose beneficiaries.
“Beware the beneficiary form,” cautions Carolyn Geer in the Wall Street Journal. Why? Even if you’ve gone to the trouble of making a will (and carefully selecting the beneficiaries of your life insurance as described above), all your hard work can be undone with the stroke of a pen when you open a bank, brokerage or retirement account, Geer explains.

People often seem perfectly willing to have huge sums of insurance proceeds or retirement funds distributed to their beneficiaries without any structural protections, Geer warns.  Merely writing down someone’s name as beneficiary will not protect against predators, creditors, or potential ex-spouses. Naming minors, special needs individuals, or even financially irresponsible heirs as direct beneficiaries is never a good idea, she adds.

Leave peace of mind along with assets
When mistakes are made, you’re not creating problems for you,” Keith Friedman writes in NASDAQ. “You’re creating problems for the people you leave behind.” While nobody wants to think about death or disability, we explain to our Geyer Law clients, proper estate planning puts you in charge of your finances and spares the people dear to you the expense, delay, frustration – and confusion.


- by Rebecca W. Geyer

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