Key Takeaways

When you pass away, a beneficiary is the person or entity who will receive your assets, as specified by you on certain types of accounts or insurance policies. It is crucial to update your beneficiary designations after significant life events to ensure that your wishes are current. Different rules apply to minor beneficiaries due to limitations on contractual agreements and the types of property they can legally own. The primary beneficiary is your first choice to receive assets, while contingent beneficiaries serve as backups.

Defining a Beneficiary

A beneficiary is the individual who will receive your assets after you pass away, such as a death benefit from a life insurance policy. For example, you may need to select a beneficiary for annuity contracts, individual retirement accounts (IRAs), 401(k)s, life insurance policies, and pension benefits. Your beneficiary designations may differ from any last wishes expressed orally or in your will.

Understanding Beneficiary Designations

When you establish a financial account that will continue after your death, you typically need to identify a beneficiary. This designation is included in the paperwork for the account and may override the instructions in your will. It is essential to regularly review your beneficiary designations, especially after major life events like marriage, divorce, birth, or the death of a spouse or designated beneficiary. Changes in your circumstances or your beneficiary's status may necessitate updating your designations to ensure your assets are distributed correctly.

Special Considerations for Minor Beneficiaries

Minors are usually unable to enter into contracts or legally own property in their name, which can impact their ability to receive certain types of accounts or insurance payouts. To address this issue, consider designating a living trust with a custodian acting in the child's best interest or assigning the child's parent or guardian as the beneficiary. Different rules apply to Social Security beneficiaries, where specific criteria must be met to qualify for benefits.

Benefits of Naming a Beneficiary

Choosing a beneficiary provides clarity about who will receive your assets upon your death, avoiding potential disputes among family members. It also expedites the asset distribution process by allowing beneficiaries to claim assets promptly. Primary beneficiaries are your first choice for receiving assets, while contingent beneficiaries serve as backups in case primary beneficiaries are unavailable. Various options exist for naming beneficiaries, such as organizations or entities, per stirpes distribution, or per capita division.