What Should I Know about Beneficiaries?

Whenever you open a financial account, you're almost always asked to name a beneficiary. Simply stated, a beneficiary of the account is someone who is entitled to the benefits of the account, typically, on the death of the account holder. If you've purchased life insurance, for example, you name a beneficiary, who receives the benefits of the policy when you pass.

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When you open almost any kind of financial account, it is critical to know about beneficiaries and designate them properly. Did you know that often the best beneficiary to designate is a properly-drafted Trust? You’ll also name beneficiaries when you create a Trust-based estate plan, or other legal contracts that require you to specify someone to benefit. With some trusts, the beneficiary may be you and your spouse while you’re alive and then children or other loves ones. In parts of Massachusetts like Plymouth and Cape Cod, it is common that properties and assets are held in one or more Trusts to optimize tax positions and legal benefits. If you have a trust then have it reviewed and updated by McManus Estate Planning at least every three [3] years.

The beneficiary is typically a person, but it could be any number of individuals, as well as the trustee of your trust, your estate, or a charity. Do not assume that you know about beneficiaries, rather, confirm that your financial institution has the correct designations.

When you’re opening an account, many people forget to choose a beneficiary, mainly because it’s not necessary to do so with many financial accounts. However, you should name your beneficiaries, because it ensures that your assets will pass to the people you intend. It also eliminates conflict and can decrease legal interference.

There are two basic types of beneficiaries: a primary beneficiary and a contingent beneficiary. A primary beneficiary (or beneficiaries) is first in line to get the distributions from your assets. You can assign different percentages of your account to this group. A contingent beneficiary will benefit, if one or more of the primary beneficiaries is unable to collect (typically upon death).

You should review the designations regularly, especially when there’s a major life event, such as a death, divorce, adoption, or birth. This may change who you want to be your beneficiary.

Ask an experienced estate planning attorney to help you make certain that any language in your will, doesn’t conflict with beneficiary designations. Beneficiary designations take precedence over your will. Attorney Keith McManus, at McManus Estate Planning, LLC. , has over 25 years of experience with this field of law practice.

You can have a minor child as a beneficiary, but this may not be optimal as a minor usually can’t hold property. Consequently, you’ll need to set up a legal structure like a Trust, so the child receives the assets in a more prudent way. Explore using a trust to the same effect but with an added benefit: you can state that the assets be given to beneficiaries, only when they reach a certain age or for a certain purpose, like buying a first home or for college tuition. Likewise, asset protection for the recipient-beneficiary is possible for more sophisticated trusts.

Do not assume any of these benefits are already in place, or that beneficiary designations are proper, until you have your full estate plan reviewed by Attorney McManus.

Reference: Bankrate (July 1, 2020) What is a beneficiary