Beneficiary Designation vs Will

Financial Planning Estate Planning and the Fool
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The different custodians can work differently!!!

I looked at the Schwab form. In there I found Select either a per stirpes or a per capita distribution option. Only one option may be selected per account.

I looked up the Fidelity form. Fidelity has per stirpes for each individual beneficiary.

https://www.fidelity.com/bin-public/060_www_fidelity_com/doc……

I tried to find a form for Vanguard but only came up with a link that required an account.

This is actually a very significant finding. One might choose or eliminate a given brokerage, for an IRA or other beneficiary account, based on how flexible the beneficiary designation options are.

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Vanguard per stirpes question:

Short answer – Vanguard allows per stirpes
Other short answer – Vanguard requires each descendent to call in and identify the other descendents. Accounts are funded once all the forms match (and whatever other internal checks Vanguard performs)

Long answer/background info below:

I checked on how my father titled the beneficiary on his Vanguard Traditional IRA. It states “To my descendents who survive me, per stirpes”. (My father had accounts with Vanguard, Fidelity, TD Ameritrade and two brick and mortar banks. They were all titled slightly differently depending on the institution.)

I know I am repeating myself from a previous post somewhere, but Vanguard required each of us four children to provide information on ourselves and on the other siblings. I don’t remember everything we had to provide, probably name, address, phone number, maybe social security number if we knew it. Neither of my brothers realized that my sister had started to legally use her married name and provided her maiden name. My sister and I identified her with her married name. Vanguard would not fund our Inherited IRAs until all of our paperwork matched.

Also, be aware that Vanguard did not contact us and inform us that our paperwork didn’t match. I made a habit of calling all of the financial institutions with whom my father had accounts for status updates 2-3 weeks after each step of the process. After checking with all of my siblings and learning that everyone had created an account and gone through the on-line process, I waited a week or two and then called Vanguard to inquire the status of the accounts.

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I accessed Vanguards info on beneficiary designations and found their take on a couple of points we have discussed in this thread.

Concerning identifying per stirpes heirs by name. Apparently not necessary with VNG since their heading says “automatic” but the detail only mentions names as they apply to marriage and divorce, nothing about births. Confusing. Regardless, it appears that even documenting the family tree aspect varies by custodian.

Including all of your children automatically

To designate all of your children as beneficiaries, you can leave your IRA “to my descendants who survive me, per stirpes.” Then you wouldn’t need to check your children’s names as they marry or divorce.

The “to my descendants who survive me, per stirpes” designation would divide your assets equally among all of your children who survive you. If any of your children die before you, that child’s children—your grandchildren—would equally share their deceased parent’s share of your assets.

If any of your children die before you without children of their own, their shares would be divided among your surviving children.

Stepchildren aren’t included in the “to my descendants who survive me, per stirpes” designation. If you’d like to leave your IRA to your stepchildren, you should add them as named beneficiaries.

The second thing which is a big disappointment to me is this:

Retirement Beneficiaries

Your selections will carry over if you have multiple IRAs of the same type.

So if I split accounts, each account will have the same beneficiary designation so it won’t solve the problem I am trying to solve. If I want to go this route, I will have to move half the assets to another institution. Crap!

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Vanguard per stirpes question:

Short answer – Vanguard allows per stirpes
Other short answer – Vanguard requires each descendent to call in and identify the other descendents. Accounts are funded once all the forms match (and whatever other internal checks Vanguard performs - HHC

Thanks HHC, that part about all descendants having to call in, and all forms have to match is exactly what I fear will lead to problems in mt situation.

Them not calling you when there are mismatches or missing info is just plain poor customer service on their part which is too often a common complaint about VNG in recent years.

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And thank you for advising about discussing attorney fees that may come into play when my attorney provides services to my daughter in her role as executor. In my first meeting I asked about probate costs and he said $3,500 if we had to go through probate. Right now the way things are headed is the only things that will pass via my will are personal property and 100% to my daughter so nothing to adjudicate. But the $3,500 was for court expense, I never inquired about his fee which I hope would be a straightforward and reasonable hourly rate instead of any percent of estate non sense. I will be sure to nail this down.

My father and I assumed I would be able to do most of the executor work myself and use the attorney on an hourly as-needed basis. I had an issue with the “percent of estate nonsense” myself and I am sure that my father was not happy if he was looking down on us at that moment. I considered shopping around for another attorney, but this was during Covid before vaccinations were available. I was recovering from Covid myself and also dealing with grief. It was not a good time to shop around for an attorney. That is one of the reasons I recommended you speak to your estate attorney about the settlement process and fees now. Your daughter will not want to shop around for an attorney if she needs one.

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My daughter has two kids and my son has no kids. So under per stirpes, if my daughter dies first, her slice goes to my grand kinds which is fine. But if my son does first, he has no children so his slice goes into his estate and ends up god knows where. If my son goes first, I want his share to go to my daughter which ultimately will benefit my grandkids.

You should be able to specify that your daughter is your bene, per stirpes, and you son is your bene, no per stirpes. Such is an option with my firm, I assume it would be available at other firms.

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Hawkwin:

OP: {{{My daughter has two kids and my son has no kids. So under per stirpes, if my daughter dies first, her slice goes to my grand kinds which is fine. But if my son does first, he has no children so his slice goes into his estate and ends up god knows where. If my son goes first, I want his share to go to my daughter which ultimately will benefit my grandkids.}}}

“You should be able to specify that your daughter is your bene, per stirpes, and you son is your bene, no per stirpes. Such is an option with my firm, I assume it would be available at other firms.”</i?

Not my bailiwick, but I clearly do not understand; can you elaborate?

Who would daughter be taking per stirpes with? Per Stirpes - by root or by branch. If there is only one child being discussed, what other branch are they sharing with?

Color me confused.

JAFO

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Who would daughter be taking per stirpes with? Per Stirpes - by root or by branch.

The daughter has two kids. With per stirpes, her “root or branch” kids would get her share if she predeceases the OP. With the son and non per stirpes, his portion would revert to the daughter if he predeceases the OP.

https://www.freewill.com/learn/per-stirpes-definition#:~:tex….

Snip:

With a per stirpes distribution, if one of your beneficiaries dies before you, their share of your estate will pass to their descendants. Using per stirpes is a quick way to name contingent beneficiaries for your property.

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Hawkwin:

<<<Who would daughter be taking per stirpes with? Per Stirpes - by root or by branch.>>>

“The daughter has two kids. With per stirpes, her “root or branch” kids would get her share if she predeceases the OP. With the son and non per stirpes, his portion would revert to the daughter if he predeceases the OP.”

Thanks for the explanation, which I follow, but it does not match my understanding of the definition of the terms.

If son dies, and no kids, his root is caught off; it should all go to the daughter anyway.

Also, your solution does not address son and daughter both surviving OP and son dying and leaving his half (or what is left of it) to whomever sons desires. Seems son’s half should almost be in trust to assure that any left-over goes to daughter or her children, though son may need some limited power to invade corpus either with consent or for health, safety and welfare. BWDIK?

Regards, JAFO

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The daughter has two kids. With per stirpes, her “root or branch” kids would get her share if she predeceases the OP. With the son and non per stirpes, his portion would revert to the daughter if he predeceases the OP. - Hawkwin

If my son remains childless, his portion goes to his sister even if he is also per stirpes and predeceases me. That said, I am not sure Vanguard will let me specify primary beneficaries as “duaghter per stirpes” and “son non per stirpes”

I get the impression that what I literally specify as the beneficiary designation is “descendants per stirpes” or “my living descendant per stirpes” and that is it. no names mentioned in the beneficiary, just generic “descendants”. Then I separately document a family tree as Vanguard’s roadmap in performing the actual per stirpes allocations.

I plan on talking all this over in my next appointment with my estate attorney before engaging Vanguard. I still may be forced to move half my assets to another custodian so I can specify only one beneficiary per account. With Vanguards process requiring paperwork from all heirs, as soon as both kids are on one account as heirs, then my sons inaction can delay my daughter getting her piece. I really really want to avoid that possibility.

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Also, your solution does not address son and daughter both surviving OP and son dying and leaving his half (or what is left of it) to whomever sons desires. Seems son’s half should almost be in trust to assure that any left-over goes to daughter or her children, though son may need some limited power to invade corpus either with consent or for health, safety and welfare. BWDIK?

Regards, JAFO

I get your point but in my case, I am not too concerned with controlling my sons slice after he receives it. But I do have two considerations. First, if he predeceases me, , then I want his slice to go to my daughter. Second, if he is missing or uncooperative, I don’t want that to impact or delay my daughter receiving her slice.

Note that am using the term slice rather than half. I am not clear if per stirpes will allow me to implement asymmetric splits. That is another element that may drive me toward moving some assets to another custodian. I would prefer to just split into two unique account, both at Vanguard, but their system is clear, their beneficiary designations operate at the account TYPE level. So two Roths with them would not allow me the features I am looking for.

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bighairymike:

JAFO to Hawkin: <<<Also, your solution does not address son and daughter both surviving OP and son dying and leaving his half (or what is left of it) to whomever sons desires. Seems son’s half should almost be in trust to assure that any left-over goes to daughter or her children, though son may need some limited power to invade corpus either with consent or for health, safety and welfare. BWDIK?>>>

“I get your point but in my case, I am not too concerned with controlling my sons slice after he receives it.”

“But I do have two considerations. First, if he predeceases me, , then I want his slice to go to my daughter. Second, if he is missing or uncooperative, I don’t want that to impact or delay my daughter receiving her slice.”

Understood.

“Note that am using the term slice rather than half. I am not clear if per stirpes will allow me to implement asymmetric splits.”

I am not familiar with the Vanguard paperwork, but generally speaking per stripes does not allow for asymmetric splits - it is usually 1/2, 1/3, 1/4depending upon roots/branches.

“That is another element that may drive me toward moving some assets to another custodian. I would prefer to just split into two unique account, both at Vanguard, but their system is clear, their beneficiary designations operate at the account TYPE level. So two Roths with them would not allow me the features I am looking for.”

If you do two accounts, just be aware of your investing strategy. I recall reading about a father who started a UGMA accounts for his two sons, and in one he bought Microsoft and some other then-hot tech stock and a few years later one son had stock worth $xxx,xxx.00 and the other son had stock worth $x,xxx.00 Dad did not buy each stock in both accounts to avoid two extra trade fees and was now looking for a way to legally equalize the values.

It was a shame it was not 529 accounts he owned because he could have moved the money easily, but they were UGMA accounts. Moving the money would be theft. And he did not have sufficient additional funds to contribute to the second son to equalize the accounts.

You do not want your son to hit the lottery with your best investment choices while your daughter gets the ones with average returns.

Regards, JAFO

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If son dies, and no kids, his root is caught off; it should all go to the daughter anyway.

No, it would go to his estate. It would not automatically revert to the daughter.

Seems son’s half should almost be in trust to assure that any left-over goes to daughter or her children, though son may need some limited power to invade corpus either with consent or for health, safety and welfare. BWDIK?

Correct, there are only two methods (that I know of) to control assets beyond the grave, a trust or an annuity where the contract is set up with irrevocable contingent benes.

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That is another element that may drive me toward moving some assets to another custodian.

At this point, that is likely your best solution. Probably every no-cost brokerage under the sun can hold Vanguard funds and there are likely dozens and dozens out there that will allow you to designate your benes in a manner to allow you to accomplish your wishes.

their beneficiary designations operate at the account TYPE level. So two Roths with them would not allow me the features I am looking for.

That’s just dumb on their part. Really really dumb.

I use eTrade for my personal accounts and they appear to allow for all the options you want at account level and not type level (scroll down to designation of bene IRA):

https://us.etrade.com/forms-applications

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If you do two accounts, just be aware of your investing strategy. I recall reading about a father who started a UGMA accounts for his two sons, and in one he bought Microsoft and some other then-hot tech stock and a few years later one son had stock worth $xxx,xxx.00 and the other son had stock worth $x,xxx.00 Dad did not buy each stock in both accounts to avoid two extra trade fees and was now looking for a way to legally equalize the values.

It was a shame it was not 529 accounts he owned because he could have moved the money easily, but they were UGMA accounts. Moving the money would be theft. And he did not have sufficient additional funds to contribute to the second son to equalize the accounts.

You do not want your son to hit the lottery with your best investment choices while your daughter gets the ones with average returns.

Regards, JAFO

===================

Good point. But I am mostly (90+%) index funds, easy to split and more or less identical performance thereafter. I really don’t relish learning someone else’s (probably Fidelity) platform and dealing with double the number of statements/1099’s, etc, but I’ll do what I have to. I see why people dump everything into their estate or a trust and then let the will or trust document deal with the allocations and the if-thens. I still may go that way too but I think I that would erase the ten year tax free draw down advantage of the Roth where the bulk of my investments set. That may be good question for this forum.

If the Roth beneficiary was simply “the estate of BHM”, and then my will then says give x to daughter and y to son, would they still enjoy the same ten year tax free growth window they would have if they inherited directly from me to them without going through the estate?

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Short answer: For complicated (non-spouse) beneficiary designations, you are probably better off designating a trust as the sole beneficiary. The trust contains all of your wishes. If your plans change, you amend your trust. No need to mess with the beneficiary designation again.

Mike

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Before you split accounts, ask about having multiple beneficiaries on one account. At least some people are happy to do that and even specify percentages.

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Short answer: For complicated (non-spouse) beneficiary designations, you are probably better off designating a trust as the sole beneficiary. The trust contains all of your wishes. If your plans change, you amend your trust. No need to mess with the beneficiary designation again.

Mike

I am amenable to the trust approach as long as the tax advantage of the Roth, specifically the ten year window for continued tax free growth, is preserved. I can’t seem to locate a clear and direct answer to this question. I will talk this point over with my estate attorney at my next visit but I sure would like to independently verify this important point.

It is not that I don’t trust my attorney but using per stirpes as an example, I gained a much deeper understanding of the nuances from discussing here as opposed to his explanation of how per stirpes operates.

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Before you split accounts, ask about having multiple beneficiaries on one account. At least some people are happy to do that and even specify percentages. - tamhas

That is what I have now and have had for years. Then when I recently got more serious about estate planing, my research revealed two big problems I an still trying to figure out.

One is, with simply two primary beneficiaries with a percent split, if one of them predeceases me, the other gets 100%. This of course assumes even though I am still living, but I am too demented to modify my estate plan upon the death of a named beneficiary. The second problem is if one beneficiary cannot be located or is uncooperative, that will complicate and delay the distribution to the other.

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>>If son dies, and no kids, his root is caught off; it should all go to the daughter anyway. - JAFO31<<

No, it would go to his estate. It would not automatically revert to the daughter. - Hawkwin

This is from Vanguards website. You have to have an account to get to it…

Including all of your children automatically

To designate all of your children as beneficiaries, you can leave your IRA “to my descendants who survive me, per stirpes.” Then you wouldn’t need to check your children’s names as they marry or divorce.

The “to my descendants who survive me, per stirpes” designation would divide your assets equally among all of your children who survive you. If any of your children die before you, that child’s children—your grandchildren—would equally share their deceased parent’s share of your assets.

If any of your children die before you without children of their own, their shares would be divided among your surviving children.

Stepchildren aren’t included in the “to my descendants who survive me, per stirpes” designation. If you’d like to leave your IRA to your stepchildren, you should add them as named beneficiaries.

Vanguard verbiage favors JAFO31’s interpretation of the rule. But we have learned that different custodians offer different alternatives so Hawkwin at E-trade may be entirely correct in his experience… That said, I would think this aspect would be a matter of law and not a matter of custodian policy. This all so confusing that I don’t see how any estate attorney can be certain in some of the advice he gives you. Hence my fool’s errand to gain independent knowledge.

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