Q.: I’m leaving my IRA to my son and daughter 50/50. What happens when one of them dies? Will my grandchildren get the funds? I have four grandchildren, two from each of my kids.
— Tim in Columbia
A.: Tim, what happens to the IRA money is dependent upon what the beneficiary designations say and when one of your children passes away. The beneficiary designation will dictate the outcome, not what is written in your will.
If your children are alive when you die and you simply named them 50/50 outright beneficiaries, they will each get half the funds and can do as they please including taking the funds in an Inherited IRA account and naming anyone they want as beneficiaries.
If either child dies before you pass away and you do not update your beneficiary designation before you die, there are generally two common default arrangements built into account forms for IRAs, retirement accounts, life insurance policies, annuity contracts and “transfer on death” arrangements available in some states.
The first is per capita. If one child is deceased at the time of your death and still listed as a 50% beneficiary, their share will go 100% to your surviving child.
The second common arrangement is per stirpes. That’s Latin for “by the root” Under this arrangement, instead of the predeceasing child’s share going to their surviving sibling, the share goes to the deceased beneficiary’s children.
You should get a copy of what you filed for your beneficiary designations and read the language carefully to see if it aligns with your wishes. For simpler arrangements, the defaults in most agreements can work fine.
However, if how you want your assets to flow differently, you should talk to an attorney about drafting a custom beneficiary designation. Many people do not want one or more of their beneficiaries to inherit outright and do as they please with the funds. Sometimes beneficiaries aren’t good with money or are in litigious lines of work or marry people we don’t like.
Further, including people not among your linear decedents like spouses of children or grandchildren or family friends as beneficiaries or wanting to name entities like trusts or charities beneficiaries are also common reasons to consider a custom designation drafted by an attorney.
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If you have a question for Dan, please email himwith “MarketWatch Q&A” on the subject line.
Dan Moisand’s comments are for informational purposes only and are not a substitute for personalized advice. Consult your adviser about what is best for you. Some questions are edited for brevity.
Source : MTV
