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Defining beneficiaries on IRA accounts
Old 04-24-2018, 12:41 PM   #1
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Defining beneficiaries on IRA accounts

I'm surprised I can't find more about this topic when I search the forum.

Most of my money is in taxed deferred 401K or IRA rollover accounts.
I've been told that the defined beneficiaries document associated with these accounts will determine where the money goes when I die, not my will. So this document is basically defining how all of my money will be distributed when I die, except for my house and personal property. It is an important document.

I'm in the process of updating my defined beneficiaries for my two retirement accounts (IRA and 401K). I don't have children, or this would be a slam dunk.

My questions regarding these IRA beneficiary documents:
- If one of the beneficiaries has children, and the beneficiary dies before me, how do I make sure the children get that beneficiaries share?
- If they don't have children, and the beneficiary dies before me, I would want the money to go to the beneficiaries spouse. If their spouse is not alive, how do I make sure the money goes back into the pool of money that is my estate? I don't really want the money to go to their nieces and nephew through marriage. I most likely don't know those people.
- In several cases I want the money to go to the grandchildren if the beneficiary dies. (One nephew is a drug addict) How would I define this?
- The form I have requests the SS number of each beneficiary. I don't have this information, and I don't want to ask family and friends for this. Is this information necessary? Why not just name, relationship and address.
- Has anyone found a very well written example that I could reference? If yes, I'm interested in that. Based on my questions, this document is going to be more detailed than my will.

If you have any other recommendations or things to be concerned about regarding these documents, I'm interested in what you know about this.

Thanks,

JP
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Old 04-24-2018, 12:58 PM   #2
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One option is to make your estate the sole beneficiary of your IRAs, then use a will to manage the inheritance. You can also do the same a trust.
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Old 04-24-2018, 01:01 PM   #3
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Originally Posted by JP.mpls View Post
My questions regarding these IRA beneficiary documents:
- If one of the beneficiaries has children, and the beneficiary dies before me, how do I make sure the children get that beneficiaries share?
- If they don't have children, and the beneficiary dies before me, I would want the money to go to the beneficiaries spouse. If their spouse is not alive, how do I make sure the money goes back into the pool of money that is my estate?
- In several cases I want the money to go to the grandchildren if the beneficiary dies. (One nephew is a drug addict) How would I define this?
The answer to all of these questions is to change the beneficiary when your listed beneficiary dies.
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Old 04-24-2018, 01:47 PM   #4
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One option is to make your estate the sole beneficiary of your IRAs, then use a will to manage the inheritance. You can also do the same a trust.
Naming an estate as the beneficiary of an IRA is generally a bad idea. This is because the IRS considers it an unnamed beneficiary, and you then can't take advantage of a "stretch" IRA, i.e. one where the RMD's are based on the beneficiary. Instead, if you die before you start taking RMD, the money must be liquidated to the estate within 5 years (and taxes paid on the distribution). If you are already taking the RMD (i.e. 70 1/2), then the distributions must be taken using your remaining single life expectancy.

In general, the best practice is to distribute to the youngest possible. If you want to skip a generation, it is possible to list the next generation as contingent beneficiaries, and the beneficiary can disclaim.

This is complicated enough that I would get the advice of someone (not me, an unknown person on the internet) for assistance.
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Defining beneficiaries on IRA accounts
Old 04-24-2018, 02:11 PM   #5
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Defining beneficiaries on IRA accounts

I remember when Dad updated his beneficiaries after Mom died, there was a question to answer about “per stirpes” which designates what happens if your beneficiary dies before you. You can decide if the deceased beneficiaries portion goes back into the pot, or if it goes to their heirs. Google that and see if the definition helps to solve your situation.
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Old 04-24-2018, 02:57 PM   #6
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"Per stripes" (Latin by roots) means that each branch of the family tree, i.e each branch of the tree gets the same amount/%. Strict per stripes means (usually) that if the root beneficiary predeceases you, then their share gets distributed to their children. (Also known as "by representation" or "by class") "Per capita" (Per capita at each generation aka take the total number of headcount) means that all living representatives of a given group (e.g. siblings or children of siblings) receive an equal share. However, if one of the members of the given group dies, what would have been their share is not passed on, but instead distributed to the remainder of the group.

If there are adopted children or the potential of adopted children, it is wise to be explicit in the designation of what a "child" is. The laws vary by state. I put explicit language in my will making it clear that adopted children were included in the linage.
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Old 04-24-2018, 03:15 PM   #7
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I wouldn’t say “bad idea” but would agree with “taxable”. If the estate is also a trust, there is an option to not liquidate the IRAs but instead split and pass them to the beneficiaries.

IANAL, but my understanding is per stirpes does not include spouses. The OP envisions multiple possibilities, and that is not easy with IRA beneficiary assignments. If the OP wants to do this with the IRA beneficiary, I would suggest contacting the custodian and clearing with them the viability of these instructions.

If cost is not an issue, it is easier to accomplish this with a trust.
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Old 04-24-2018, 03:25 PM   #8
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Just Curious,
I think you bring up a good point, I just have to stay on top of this, and keep it updated.
The only issue I see with this is if I become incapable of doing that, but if that happens, the whole estate will most likely get eaten up by the nursing home. I hope to crash and burn before that happens, but don't we all.


Copyright and Sue J.,
The "Per Stripes" designation also sounds like a very good idea. I wonder if I can designate it "Per Stripes" to the grandchildren, instead of the children for some of the beneficiaries? I suspect I can. Again, I'm trying to steer money toward a couple of great nieces, instead of their terrible parents.


I appreciate all of your comments.


I'm going to do a will this year. I will ask the lawyer about this at that time too. If the lawyer recommends something completely different, I will let you know.


Take care, JP
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Old 04-24-2018, 03:59 PM   #9
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"Per stripes" (Latin by roots)
It's actually "per stirpes."
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Old 04-24-2018, 04:52 PM   #10
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Beneficiary (grandchildren) 25% to Joe per stirpes, 25% to Jane per stirpes, etc.
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Old 04-24-2018, 05:26 PM   #11
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It's actually "per stirpes."
yepper. Spellcheck failed me.
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Old 04-24-2018, 06:32 PM   #12
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Many of th forms I have used have a place for contingent beneficiaries to be listed. For example, I have m DW listed as beneficiary, and her 2 sons listed as contingent beneficiaries.
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Old 04-24-2018, 06:53 PM   #13
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Talk to a lawyer. This is an area where well-meaning people on the Internet share with you what we know, some of which is probably wrong or incomplete. There is stuff on this thread that I think falls into that category, but if I were to try to "correct" it according to my understanding, there is still a significant chance that what I say will be wrong or incomplete.

This is especially true in the area of estates and divorces, as they are governed by both federal and state laws, and state laws differ in how they treat these items (as well as many others I'm sure). What I might say to you might be true in my home state of Idaho but may be different in a material way for you in your home state.

Less likely, but still possible, is that the way your investment custodian(s) treat your beneficiary designations may differ slightly from custodian to custodian.

Threads like these are really just good for general information and to make people aware of some of the options that may be available to them and not much more.

My 2 cents, IMHO, IANAL, and YMMV.
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Old 04-24-2018, 08:43 PM   #14
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I agree with consulting with a lawyer. You can designate primary and contingent beneficiaries for IRAs and indicate whether they should be per stirpes. Just be sure that none of your beneficiaries are minors.
Because we don’t have children, our IRAs are payable to our estates, and trusts are part of our wills that specify the beneficiaries as well as a trustee, since our heirs are all minors (niece and nephews).
Wills are not a one-and-done. I’m only 47, but am on my 3rd revision. As situations change, you want your estate planning to change along with it.
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Old 04-24-2018, 08:58 PM   #15
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