Estate Planning: Assets With Beneficiary Designations - T. Rowe Price

Naming a specific person or organization as a beneficiary, other than your estate, is one way to conveniently and promptly transfer certain assets. Solely owned assets registered as "payable on death" or "transfer on death" are designed to automatically pass to the specified beneficiary upon your death. Similarly, you may own IRAs, employer-sponsored retirement plans, life insurance, and annuity contracts with beneficiary designations. Your beneficiaries on these types of accounts do not have any access to the funds until you pass away, and you may change the designations at any time.

Assets with beneficiary designations or automatic transfer registrations are part of your taxable estate, but your will or trust does not control their distribution unless your estate or the trust is specifically named as the beneficiary (or if the beneficiaries that you designated predecease you). Therefore, you need to periodically review your beneficiary designations for your assets, including the beneficiaries named on your retirement plan accounts and life insurance policies.

When choosing your beneficiaries, it is important to understand how the assets are transferred in the event that one of the beneficiaries predeceases you. Your assets may transfer to your beneficiaries according to a "per capita" method or a
"per stirpes" method. We recommend that you review all of the contracts and beneficiary designations you have in force today, and confer with your estate planning attorney as to whether they will actually accomplish what you intend. Be sure you understand how each institution handles the situation based on its policies and the choices you have made as reflected in the institution's records.

Per Capita

A per capita designation typically divides an asset equally among only the beneficiaries specified. If one of the beneficiaries were to pass away before you, his or her share would go to the other beneficiaries listed. For example, you listed your daughter, the mother of your grandchild, as the 50% beneficiary on an account you hold at T. Rowe Price, but she predeceases you. Your two bachelor sons, who each were listed as 25% beneficiaries, survive you. With the per capita distribution method, each son would absorb half of your deceased daughter's share and receive 50% of the assets in the account. Your grandchild would inherit nothing from the account. At T. Rowe Price, your IRA or other account assets would be distributed per capita unless you specifically stipulated to the contrary.

Per Stirpes

When you name your beneficiaries per stirpes for an account held at T. Rowe Price, in the event that one of the beneficiaries predeceases you, his or her share of the account passes to his or her descendants (i.e., children or grandchildren). For example, you listed your daughter, the mother of your grandchild, as the 50% beneficiary, but she predeceases you. Your two bachelor sons survive. You had designated each son to receive 25% of the assets. With the per stirpes distribution method specified for the account, each son still receives 25% of the assets, and your deceased daughter's share of 50% passes to your grandchild.