Who is a beneficiary / benefactor is someone who receives assets at your death, such as a death benefit from a life insurance policy. You’ll probably be asked to select a beneficiary if you have one of these kinds of accounts: … Individual retirement accounts (IRAs), 401(k)s, and other retirement accounts. Life insurance policies.
Why Choose a Beneficiary?
There are several reasons for choosing a beneficiary to receive your assets after you die.
By assigning a beneficiary, you make it clear who should receive your assets in the event of your death. This eliminates any questions or disputes among remaining family members and friends who might argue that you would have wanted somebody else to receive the assets.
Choosing a beneficiary also speeds up the process of distributing assets after your death. It can be faster and easier to claim assets as a beneficiary, rather than waiting for the probate process to be completed.
A named beneficiary can typically claim assets as soon as the death is documented, usually by providing documents such as a death certificate and affidavit of domicile. Moreover, a beneficiary designation usually supersedes (or overpowers) the instructions in a will—so the will only applies to assets that do not have a named beneficiary.
Types of Beneficiaries
There are two basic types of beneficiaries, primary and contingent.
Primary beneficiariesare the account owner’s first choice for a beneficiary. In the event of death, the benefits go to the primary beneficiary, if still living
NOTE: You can have multiple primary beneficiariesin some case.
For example: You could have three primary beneficiaries, each of whom would receive 33.3% of assets.
Contingent beneficiariesused as a backup, in the event that there are no living primary beneficiaries or they cannot be found.
For example, assume an account owner picks his wife as the primary beneficiary. She would receive all assets at his death. However, if the husband and wife both die at the same time in an auto accident, there is no living primary beneficiary. As a result, assets will go to a contingent beneficiary, if any.
If there is no contingent beneficiary, or when none of the contingent beneficiaries claim the assets, then state law dictates what happens to the assets.
There are also other ways of naming beneficiaries within these two main groupings.
For example, you could name an organization or entity as your beneficiary, not just a person. You could designate assets be “ per-stripes” which means if the beneficiary dies before you, their children become the beneficiaries Or you could decide the assets should be distributed “per capita,” which says they are to be divided equally among the beneficiaries upon your death.
Especially when considering children, multiple generations, or the possibility that beneficiaries may predecease you, it’s essential to understand how beneficiary designations work and what your options are. Speak with your financial planner or estate planning attorney to make sure you’re recording your wishes properly.
Minors as Beneficiaries
If you’re going to leave money to minors, it’s even more important to speak with an estate planning attorney. Generally speaking, minors are not allowed to enter contracts and can’t legally own property, and therefore can’t own certain types of accounts. However, there are ways to ensure that money goes to a minor or is spent for their benefit, including pre-appointing a trustee.
Setting up beneficiaries isn’t a one-time thing. Be sure to review your beneficiary designation regularly, especially after life events such as marriage, divorce, birth, and death. Circumstances might have changed for you or your beneficiaries, and you may need to alter your designations to reflect that.
Sometimes, you can’t change your beneficiary, such as with irrevocable trusts or under certain terms in divorce agreements. Explore all of your options with your financial planner and an estate planning attorney to make sure your assets will be distributed according to your wishes.
Does all this seem like a lot to process? Don’t worry! The insurance experts at Elite Insurace Brokers are here to help answer your questions, address your concerns, and guide you in the direction of a final expense life insurance policy that fits your needs and your budget. Visit us today to get a free, no-strings-attached quote, and then come back often for more information and inspiration about life and life insurance!
In the spirit of transparency, this blog post is for informational purposes only. We know how quickly things change, so we can’t guarantee the content and links to unaffiliated parties are up to date.