Beneficiaries are essentially the people or the entity that receive beneficial enjoyment of an asset.? When you open most financial accounts, like a bank account, life insurance, a brokerage account, or a retirement account (e.g., a 401(k) or IRA), the institution will ask you to name a beneficiary. You also establish beneficiaries, when you draft a will or other legal contracts that require you to specify someone to benefit in your stead. With some trusts, it may even be you and your spouse, while you?re alive.? Also, be sure not to overlook the use of appointing Trusts as beneficiary of certain accounts and assets.
Bankrate?s article entitled ?What is a beneficiary?? explains that the beneficiary is usually a person, but it could be any number of individuals, as well as other entities like a trustee of your trust, your estate, or a charity or other such organization.
When you?re opening an account, many people forget to make the selection, because it?s not needed as part of the process to create many financial accounts. However, making appropriate selections allows you to direct your assets as you want; avoid conflict; and reduce legal issues. Failing to name a beneficiary may create big headaches in the future, possibly for those who have to deal with sorting out your affairs.
There are two types to select. A primary beneficiary is first in line to receive any distributions from your assets. You can disburse your assets to as many primary beneficiaries as you want. You can also apportion your assets as you like, with a certain percentage of your account to each primary beneficiary. A contingent beneficiary receives a benefit, if one or more of the primary beneficiaries is unable to collect, such as if they?ve died.? Again, examine the advantages of selecting Trusts.
After you?ve named your beneficiaries, it?s important to review the designations regularly. Major life events (death, divorce, birth) may modify who you want to be your beneficiary. You should also make certain that any language in your will doesn?t conflict with designations.? Such designations generally take precedence over your will. Check with an elder law or experienced estate planning attorney.
Finally, it is important to understand that a minor (e.g., typically under age 18 in most states) usually can?t hold property, so you?ll need to set up a structure that ensures the child receives the assets. One way to do this, is to have a guardian that holds assets in custody for the minor. You may also be able to use a trust with the same result but with an added benefit: in a trust you can instruct how the assets are used, only when they reach a certain age or other event or purpose.
Reference: Bankrate (July 1, 2020) ?What is a beneficiary??