Did you know that beneficiary designations made on life insurance policies and retirement accounts will trump beneficiary designations listed in a will? What is the difference between per stirpes and per capita? These are important factors to understand as you create and maintain your estate plan.

Whenever beneficiaries are listed on life insurance policies or certain types of financial accounts, those beneficiaries will receive the proceeds upon the policy or account holder’s death regardless of the beneficiary designations listed in the decedent’s will. The beneficiary designations in a will apply only to assets that do not already have a designated beneficiary.

Typically, primary and contingent beneficiaries can be named on life insurance policies as well as retirement and other financial accounts. If your primary beneficiary passes away before you or simultaneously with you, your contingent beneficiary or beneficiaries will receive the proceeds. Whenever you go through a major life change such as a marriage, a divorce, or the birth or death of a child or grandchild, it is a good idea to review your beneficiary designations both in your will and on your financial assets.

It is also important to understand the difference between per stirpes and per capita beneficiary designations. With a per stirpes designation, you ensure that the heirs of a listed beneficiary will receive that beneficiary’s share if the beneficiary dies before or with you. Alternatively, a per capita distribution would result in the distribution of assets only to surviving beneficiaries, leaving nothing to the heirs of predeceased beneficiaries. As such, your goals for the transfer of assets to family and loved ones should be considered when making the decision to include a per stirpes or per capita beneficiary designation.

A recent piece in Kiplinger’s offers more information on items to consider when making beneficiary designations.