Who, What and Why do I need a beneficiary?

While we don’t often like to think about it, deciding who or what inherits our financial wealth after we pass away should be at the top of our priority list. It’s a fairly simple process and will save your loved ones a lot of stress when the time comes! First comes the plan, then the action. Once you have a plan for who will inherit what, you’ll need to update your accounts and list those individuals or charities as your beneficiaries. 

What is a beneficiary?

Simply put, a beneficiary is the person or entity that will receive all or some of your financial assets upon your death. There are two types of beneficiaries: Primary and Contingent.  Your Primary beneficiaries are those that are first in line to inherit your assets while a Contingent beneficiary will only inherit assets if the primary beneficiary has passed away.

Who can I list?

Beneficiaries can be a person, entity, charity, estate or a trust. Whom you list is going to be very much a personal decision, but probably also a financial consideration as well.  Read A couple of IRA beneficiary challenges to learn about some challenges beneficiaries run into when inheriting IRA assets. Consult a financial professional if you have questions about who you should list on your accounts.

I have a will, so why do I need to list beneficiaries?

Great question!  Wills and beneficiary designations are both ways people use to designate who receives assets when they die.  Beneficiary designations are contractual obligations that require assets to be distributed to specific beneficiaries at death.  Any asset of a deceased person that is not already distributed by way of contract or law (like a beneficiary account or joint ownership situation) needs to go through a ‘Probate’ process, which is a legal system set up to properly distribute assets from an estate at death.  A will is simply a list of instructions to the probate court, telling them the wishes of the decedent.  Provided the will is legal, the probate court will follow its directions.  Since the probate process can be time-consuming, public, and expensive, people often use beneficiary designations to avoid having assets go through the probate process.  Still, it’s a good idea to have a will, even if you have proper beneficiary designations, because there are usually assets that do not have a beneficiary and other considerations, like the custodianship of minor children, cannot be solved with beneficiary designations. 

How do I name a beneficiary?

It generally requires your signature on a form.  If you have multiple accounts with multiple financial institutions, you’ll need to be sure you contact each institution and request their forms- and fill out a form for each account if required! At a minimum, you’ll need to have the beneficiary’s or organization’s full name and percentage of assets to receive.  The more information you have the better, though.  Information like address, phone number, date of birth and SSN will be helpful to ensure assets are distributed to the right individual or entity.

Can I change my beneficiaries?

Yes! And you should, any time you go through a major life event.  Marriage, divorce, birth of a child, death of a loved one are all situations you might want to update your beneficiaries.  In some states, you may be required to list your spouse as at least 50% beneficiary on retirement accounts, so consider consulting a financial professional or check State Laws after a marriage or divorce. You should, at a minimum, review your beneficiaries at least once a year and determine if any updates are needed.

If you haven’t reviewed your beneficiaries in the last year, please take the time to do so! Contact a financial professional or your financial institution if you determine a beneficiary change is needed. Don’t wait- imagine the family stress that could arise if you accidentally left your assets to an ex-spouse or forgot to include a grand-child!