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Who Gets What? The Importance of Naming Beneficiaries
An important part of estate planning and financial management is determining who should receive your property after you pass away. One way to communicate your wishes and ensure your property goes to the person or entity you intended is to name a beneficiary on all applicable accounts and assets.
It is important to understand what a beneficiary is, how beneficiary designations work, and what factors to consider when naming a beneficiary.
A beneficiary is someone who stands to receive some financial benefit from another person. For example, you name a beneficiary to receive your life insurance proceeds after you pass away. For other financial products, this could be the balance of assets in an account at the time of your passing. Some financial products allow you to name a person or entity to receive them when you can no longer use them yourself. Typically, the beneficiary doesn’t receive any immediate interest in the asset until after you pass away. You’re usually allowed to change your beneficiary at any time. Changing a beneficiary is often as simple as completing a form that names your new beneficiary.
There are different types of beneficiaries. Because of this, it’s important to be familiar with the following terms so that you can make informed decisions when naming beneficiaries:
- Primary beneficiary
- Co-beneficiary
- Contingent beneficiary
You may have various options for naming a beneficiary, including naming:
- One individual
- Two or more individuals
- A trust
- A charitable organization
- Your estate
Certain assets pass outside the probate process. This means that anything stated in your last will and testament will not apply to them. Naming a beneficiary prevents these assets from returning to your estate and becoming a taxable probate asset. It also helps ensure that the person or entity you want to receive your property does so. Therefore, it’s essential to review your beneficiary designations after major changes occur in your life, such as:
- The birth or adoption of a child
- Divorce
- Marriage
- Death of a former beneficiary
Naming appropriate beneficiaries is essential to creating a solid estate plan. If you would like more information about beneficiaries, you might consider contacting an estate planning lawyer or financial advisor. These professionals can offer customized advice and clarity tailored to your unique circumstances.
For more information on how to decide a beneficiary, access the full article here.
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