Beneficiaries

Beneficiaries are the individuals or entities chosen by the owner of an asset to inherit or receive benefits upon the owner’s death. Common examples of assets with designated beneficiaries include life insurance policies, retirement accounts (such as IRAs and 401(k)s), bank accounts, and investment accounts. By naming beneficiaries, individuals can bypass the probate process, expediting the distribution of assets and providing financial security to their loved ones.

After you have taken stock of your assets, you’ll need to start setting your beneficiaries. Collect the necessary information about potential beneficiaries, including their full legal names, dates of birth, and social security numbers. This ensures a smooth transfer of assets without delays or complications. You’ll then need to break down what beneficiaries receive what and how inheritance proceeds should you outlive one of your beneficiaries.

Types of Beneficiaries

Primary Beneficiary: The primary beneficiary is the first in line to receive the assets or benefits upon the owner’s death. If the primary beneficiary is deceased or unable to inherit, the assets typically pass to the contingent beneficiary.

Contingent Beneficiary: The contingent beneficiary steps in to receive the assets if the primary beneficiary cannot. This ensures a smooth transition of assets and avoids potential conflicts or delays.

Revocable Beneficiary: The owner of the asset can change a revocable beneficiary at any time without needing the consent of the current beneficiary. This flexibility allows for adjustments in response to life events such as marriages, divorces, or the birth of new family members.

Irrevocable Beneficiary: Once designated, an irrevocable beneficiary cannot be changed without the explicit consent of the beneficiary. This type of designation is often used in specific legal or contractual arrangements.

Outliving a Beneficiary

While unpleasant to think about, it’s within best interests to plan for the possibility you outlive one or more of your beneficiaries. For all beneficiaries, this can be done by naming a contingent beneficiary or by including specific language that the bequest is only valid should the beneficiary survive you. For your descendants (or your issue, as termed legally), however, there are phrasings that allow you to designate how your bequests are made. This is known as per stirpes or per capita.

Per Stirpes: Should your descendant pass away, their children will divide the share their parent was set to receive. Other beneficiaries will receive their share as dictated.
Per Capita: All living issues will split an equal share.

Keeping Updated

Life happens – there can be major changes that could change your provisions or even cause sections to be thrown out after your passing. Be sure to review your will every few years to ensure that it still reflects all current decisions and beneficiaries and update your will as soon as possible when major life changes occur.

Identify Your Assets

Begin by listing all your assets that allow for beneficiary designations. Common examples include life insurance policies, retirement accounts, and investment accounts.

Understand the Options

Know the different types of beneficiaries and their roles. Consider the implications of choosing primary and contingent beneficiaries, as well as the flexibility of revocable and irrevocable designations.

Gather Information

Collect the necessary information about potential beneficiaries, including their full legal names, dates of birth, and social security numbers. This ensures a smooth transfer of assets without delays or complications.

Update Regularly

Life is dynamic, and circumstances change. Regularly review and update your beneficiary designations to reflect changes in relationships, births, deaths, or any other significant life events.

Consult Professionals

Seek advice from financial advisors, estate planning attorneys, or insurance professionals when naming beneficiaries. They can provide valuable insights based on your unique situation and goals.