Beneficiary Designation Including per Stirpes

Lesson

Beneficiary designation is the process of naming individuals or entities to receive the proceeds of an investment account or insurance policy upon the account holder's death. Per stirpes is a method of distributing assets to beneficiaries to ensure each branch of the family receives an equal share.

Practice Question #1

Which of the following best describes per stirpes distribution?

A) Each beneficiary receives an equal share of the assets.

B) Assets are distributed equally among each branch of the family.

C) The surviving owner automatically inherits the deceased owner's share of the property.

D) Each owner has a separate, undivided interest in the property.

Select an option above to see an explanation here.

A) This describes per capita distribution. B) Per stirpes distribution ensures that each family branch receives an equal share of the assets. C) This describes joint tenancy with the right of survivorship. D) This describes tenancy in common.

Terms

Beneficiary:: An individual or entity designated to receive the proceeds of an investment account or insurance policy upon the account holder's death.
Per Stirpes:: A method of distributing assets to beneficiaries that ensures each branch of the family receives an equal share.

Practice Question #2

What is the primary purpose of estate planning?

A) To minimize taxes on investment gains.

B) To arrange for the management and disposal of a person's estate during their lifetime and after death.

C) To ensure that a person's assets are invested in a diversified portfolio.

D) To establish a legal arrangement in which one party holds assets for the benefit of another party.

Select an option above to see an explanation here.

A) Minimizing taxes is a consideration in estate planning, but it is not the primary purpose. B) Estate planning involves arranging for the management and disposal of a person's estate during their lifetime and after death. C) This is a goal of investment planning, not estate planning. D) This describes a trust, which is a component of estate planning but not its primary purpose.

Do Not Confuse With

Per Capita:: A method of distributing assets to beneficiaries that give each beneficiary an equal share, regardless of their relationship to the deceased.
Joint Tenancy with Right of Survivorship:: A form of joint ownership in which the surviving owner automatically inherits the deceased owner's share of the property.
Tenancy in Common:: A form of joint ownership in which each owner has a separate, undivided interest in the property and has no right of survivorship.

Practice Question #3

Which of the following allows minors to receive gifts, such as money or securities, without the need for a guardian or trust?

A) Per Stirpes

B) Uniform Transfers to Minors Act (UTMA)

C) Revocable Trust

D) Irrevocable Trust

Select an option above to see an explanation here.

A) Per stirpes is a method of distributing assets to beneficiaries, not a way to give gifts to minors. B) The Uniform Transfers to Minors Act (UTMA) allows minors to receive gifts without needing a guardian or trust. C) A revocable trust can be changed or terminated by the grantor during their lifetime. D) An irrevocable trust cannot be changed or terminated by the grantor once established.

Historical Example

In the early 1900s, a wealthy businesswoman passed away, leaving behind a large estate. Her will specified that her assets should be distributed per stirpes to her three children and their descendants. At her death, one child had two children, another had three children, and the third had no children. Under the per stirpes distribution method, each of the businesswoman's children received one-third of the estate, and their children received equal shares of their parent's portion.

Practice Question #4

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Example Series 65 Example Practice Question

Real-World Example

A woman has two children and wants to ensure that her assets are distributed equally among her descendants when she passes away. She designates her children as the primary beneficiaries of her investment account and specifies that the assets should be distributed per stirpes. If one of her children predeceases her, that child's share will be divided equally among their children, ensuring that each branch of the family receives an equal share of the assets.