How To Pick A Beneficiary

A simple, and usually quick, process of selecting a beneficiary for your accounts can help you avoid a messy estate situation. Selecting beneficiaries ensures that your assets (money, property, or other valuables) are transferred to the person or organization you intend after your death.

Avoid Probate

Assets with designated beneficiaries typically avoid probate, which is a court-supervised process for distributing assets. Probate can be costly, time-consuming, and may not align with your wishes for your estate. Don’t just assume your will has you covered. Beneficiary designations on financial accounts (like retirement accounts and life insurance policies) generally supersede instructions in a will. So, it’s vital to ensure your beneficiaries align with your overall estate plan.

Who to Designate?

You can name an individual, an organization, an estate, or a trust as a beneficiary. You typically need to name beneficiaries on retirement accounts, life insurance policies, annuities, bank accounts, and investment accounts.

• Primary Beneficiary:

This is the first person or entity you designate to receive your assets upon your death. They are your first choice and will inherit your assets if they are alive and willing to accept them. Many people naturally chose a spouse as the primary beneficiary to ensure your partner is secure after you pass.

• Contingent Beneficiaries:

Always name contingent (or secondary) beneficiaries in case your primary beneficiary passes away before you. You can name multiple contingent beneficiaries and specify the order in which they inherit. You may want to name your children as contingent beneficiaries. Be aware that minors cannot directly inherit assets so you may want to consider establishing a trust to manage the assets on their behalf.

• Charities:

If you have philanthropic goals, you can name non-profit organizations as beneficiaries directly or through a donor-advised fund (DAF). This can be a way to support causes you feel passionate about.

• Trusts:

Assets held in a trust are distributed according to the trust’s terms, regardless of beneficiary designations on individual accounts. A trust can provide more control over how and when the assets are distributed, especially if you have minor or special needs beneficiaries. And a trust can be protected from creditors or lawsuits against your beneficiaries.

• Estate:

Naming your estate as your beneficiary can seem like an easy answer but can cause delays and complications. If you name your estate as your beneficiary, your assets will be distributed according to your will. However, your beneficiaries may have to wait for probate to be settled and it could result in less favorable tax treatment.

Remember, there is no one-size-fits-all answer to who you should choose as your beneficiary. It’s a personal decision that requires careful consideration of your individual situation and desires. There are also tax implications where certain beneficiaries may be subject to estate or inheritance taxes. It is important to consult with a financial advisor and estate planning attorney to understand your options and the impact on your beneficiaries.

Speak with one of our financial professionals about your situation.

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