"Per stirpes" life insurance beneficiaries: You've got it wrong
By Nick Paleveda MBA J.D. LL.M
National Pension Partners
"The life insurance policy shall go to my children per stirpes..."
"Per stirpes" is a legal term that means different things to different courts. In many cases, a life insurance agent will help fill out a beneficiary designation in a pension plan or in an insurance application. "Per stirpes" is a Latin term which translates to "by roots or stocks," and in this context, it means that each branch of the family is to receive an equal share of a decedent's estate. But does it really?
Take this example. John dies and leaves three brothers who all predeceased him. One had no children, the second brother had two children, and the third brother had one child. Generally, you would think the old English rule one would apply, which says the third brother's only child gets 50 percent and the other two children 25 percent each, because generally that is what would have happened if the brothers had lived. But not anymore!
The 2013 Evans case
In the Estate of Evans 827 N.W. 314 (2013), the court decided that the "modern approach" would prevail and they would all share the estate in thirds. This may not be what the grantor intended and therefore, per stirpes must be spelled out in the documents.
Unfortunately, many beneficiary designations in plans still have check-the-box options, and the box can mean different things to different states. In addition, one cannot tell where the person will be domiciled at death, creating a "state roulette" on beneficiaries.
What to do?
What should be done? Forget using words such as "per stirpes" or "per capita." Define what would happen if the client's child predeceased him and his share was to go to his beneficiary or beneficiaries without diminution. More words, less confusion.
Or tell them to see an estate planning attorney concerning the beneficiary designation.