Two Latin Words on Your Beneficiary Form Decide Whether Your Grandchildren Inherit Their Late Parent’s Share or Watch It Get Split Among the Aunts and Uncles

If you have a 401(k), an IRA, a life insurance policy, or a transfer-on-death brokerage account, look at the beneficiary form. Two Latin phrases hiding in the fine print, per stirpes and per capita, decide whether your grandchildren inherit their late parent’s share or watch it get vacuumed up by their aunts and uncles. This is the beneficiary designation loophole most families never think about until it is too late, and it can rewrite who gets your retirement account overnight.

The Two Words That Rewrite Your Estate

Here is the reveal. If you name your three kids as equal beneficiaries and one of them dies before you, per stirpes sends that child’s one-third share straight down to their own children, your grandkids. Per capita does the opposite: it erases the deceased child’s share and splits everything between the two surviving siblings. Same form, same three names, wildly different outcomes for the grandchildren. And on most custodian and employer plan forms, if you leave the field blank, the default is per capita or the plan’s own tiebreaker rule. That is how grandchildren get unintentionally disinherited by a form their grandparent filled out in five minutes at HR orientation.

Why the Form Beats the Will

This rests on a settled principle of retirement and insurance law: a valid beneficiary designation on a qualified plan, IRA, annuity, or life insurance policy is a contract between you and the custodian, and it overrides whatever your will says. ERISA governs 401(k)s and most employer plans, and the U.S. Supreme Court has repeatedly enforced the named beneficiary on the form, not the person named in the will. State transfer-on-death statutes work the same way for brokerage accounts. Your will controls probate assets. Your beneficiary form controls everything else, and that is usually the bigger pile.

Where This Actually Shows Up

The per stirpes or per capita choice applies to traditional and Roth IRAs, 401(k) and 403(b) plans, TSP accounts, life insurance policies, annuities, HSAs, and transfer-on-death brokerage and bank accounts. Given that IRAs hold $18.9 trillion and 401(k) plans hold $10.0 trillion as of Q3 2025, this one word on one form is quietly directing trillions of dollars of inheritance.

Who Should Care, and Who Can Skip This

If you have children and grandchildren, this matters. If you have named siblings, nieces, or nephews as beneficiaries and want the line to continue if one predeceases you, this matters. If you are single with a single primary beneficiary and a clean contingent, the choice matters less, but the contingent line still needs the same treatment. Retirees with blended families are the highest-risk group, because per capita can shift assets away from a deceased child’s kids and toward a surviving spouse’s kids from another marriage.

Fixing It This Week

1. Pull every beneficiary form: IRA, Roth IRA, 401(k), old 401(k)s at former employers, life insurance, annuities, HSA, and any TOD or POD account.
2. Read the small print. Look for a checkbox or dropdown labeled per stirpes, by representation, lineal descendants, or per capita. If the field is blank, the plan’s default applies.
3. Decide per beneficiary. You can mark one beneficiary per stirpes and another per capita. The designation applies per line.
4. Name contingent beneficiaries too, and apply the same designation there.
5. Resubmit the form and keep a dated copy. Verbal instructions to your advisor do not count.
6. Re-review after any death, divorce, remarriage, or birth in the family.

The Catch Nobody Mentions

Not every plan honors per stirpes. Some employer 401(k) forms only offer per capita, or force the share to the surviving named beneficiaries by plan rule, no matter what you write in the margin. Custodian language also varies: per stirpes, by right of representation, and by representation are not always identical under state law. If your plan will not accept per stirpes, the workaround is to name a properly drafted trust as beneficiary and let the trust document control the distribution. Confirm in writing with the custodian that your designation was accepted. A form the plan quietly rejected is worse than no form at all.

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